Time‐varying market price of risk in the crude oil futures market |
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| Authors: | Ramaprasad Bhar Damien Lee |
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| Institution: | School of Banking and Finance, Australian School of Business, The University of New South Wales, Sydney, New South Wales, Australia |
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| Abstract: | In this study, a three‐factor model of crude oil prices is estimated, which incorporates a time‐varying market price of risk. The model is able to accurately capture the term structure of futures prices with evidence suggesting that risk premiums in the crude oil market are time‐varying. Using the cross‐section of futures prices, we estimate a time‐series of the market price of risk in the crude oil market implied by the model. We find that the risk premiums in the crude oil market are driven by the same risk factors as equity and bond markets. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:779–807, 2011 |
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