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The Use of NYMEX Options to Forecast Crude Oil Prices

Abstract:
The recent introduction of traded options on crude oil futures contracts at the New York Mercantile Exchange (NYMEX) gives energy economists a new tool for forecasting the price of crude oil. Since the pricing of these options requires that market participants assess the probability distribution of future crude oil prices, a properly specified model of option pricing can be used to "back out" this assessment from observed option prices.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Forecasting and Market Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D4 -

Keywords: NYMEX options, Oil prices, Forecasting

DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No4-7


Published in Volume 9, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.