Essays On Oil Price Volatility And Irreversible Investment

<p>In chapter 1, we provide an extensive and systematic evaluation of the relative</p> <p>forecasting performance of several models for the volatility of daily spot</p> <p>crude oil prices. Empirical research over the past decades has uncovered</p> <p>significant gains in forecasting performance of Markov Switching GARCH</p> <p>models over GARCH models for the volatility of financial assets and crude</p> <p>oil futures. We find that, for spot oil price returns, non-switching models</p> <p>perform better in the short run, whereas switching models tend to do better</p> <p>at longer horizons.</p> <p>In chapter 2, I investigate the impact of volatility on firms' irreversible investment decisions using real options theory. Cost incurred in oil drilling is considered sunk cost, thus irreversible. I collect detailed data on onshore, development oil well drilling on the North Slope of Alaska from 2003 to 2014. Volatility is modeled by constructing GARCH, EGARCH, and GJR-GARCH forecasts based on monthly real oil prices, and realized volatility from 5-minute intraday returns of oil futures prices. Using a duration model, I show that oil price volatility generally has a negative relationship with the hazard rate of drilling an oil well both when aggregating all the fields, and in individual fields.</p>

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Open Access Dissertation

Discipline thesis:degree_discipline

Economics

Year dc:date.available

2016

Author dc:creator

• Pastor, Daniel Joseph

Contributors dc:contributor

• Robert Rossana

• Crude oil price volatility
• Duration analysis
• GARCH
• Irreversible Investmet
• Markov Switching
• Economics
• Oil, Gas, and Energy

Repository record dc:identifier

https://digitalcommons.wayne.edu/oa_dissertations/1472

OAI identifier oai:identifier

oai:digitalcommons.wayne.edu:oa_dissertations-2471