IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Prepress Content: The following article is a preprint of a scientific paper that has completed the peer-review process and been accepted for publication within The Energy Journal.

While the International Association for Energy Economics (IAEE) makes every effort to ensure the veracity of the material and the accuracy of the data therein, IAEE is not responsible for the citing of this content until the article is actually printed in a final version of The Energy Journal. For example, preprinted articles are often moved from issue to issue affecting page numbers, and actual volume and issue numbers. Care should be given when citing Energy Journal preprint articles.

Time-Varying Term Structure of Oil Risk Premia

We develop a framework to estimate time-varying commodity risk premia from multi-factor models using futures prices and analysts' forecasts of future prices. The model is calibrated for oil using a 3-factor stochastic commodity-pricing model with an affine risk premia specification. The WTI oil futures price data is from the New York Mercantile Exchange (NYMEX) and analysts' forecasts are from Bloomberg and the U.S Energy Information Administration. Weekly estimations for short, medium, and long-term risk premia between 2010 and 2017 are obtained. Results from the model calibration show that the term structure of oil risk premia moves stochastically through time, that short-term risk premia tend to be higher than long-term ones and that risk premia volatility is much higher for short maturities. An empirical analysis is performed to explore the macroeconomic and oil market variables that may explain the stochastic behavior of oil risk premia, showing that inventories, hedging pressure, term premium, default premium and the level of interest rates all play a significant role in explaining the risk premia.

Download Executive Summary Purchase ( $25 )

Keywords: Commodities, Futures, Expected Prices, Pricing Models

DOI: 10.5547/01956574.43.5.gcor

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 43, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


© 2022 International Association for Energy Economics | Privacy Policy | Return Policy