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Motivational Mathematics (skip) Data Information Graphing prices Motivation for my researchPowerPoint Presentation

Motivational Mathematics (skip) Data Information Graphing prices Motivation for my research

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- Motivational Mathematics (skip)
- Data Information
- Graphing prices
- Motivation for my research
- Correlation in stock prices
- Correlation in jumps
- 11/21/2006 Example

- Regression on Z-stats CVX
- OLS
- Probit

- Oil Intro

-rt,j is log return, M is total # of observations per day

- Realized Variance
- Realized Bi-Power Variation

- Sampled at the 5-minute frequency
- Sampled from 9/3/2002 to 1/24/2008 for 1343 total observed days
- Oil futures data at the 5-min frequency, from 1987
- Changing observations per day

- Ticker Symbols
- XOM—Exxon Mobile
- CVX—Chevron Oil
- COP—Conoco Phillips

-Correlation between 5-minute prices

-XOM had 29 jumps out of 1343 days observed; 6 of which were shared by either CVX or COP

-CVX had 41 jumps out of 1343 days observed; 4 of which were shared by either XOM or COP

-COP had 38 jumps out of 1343 days observed; 6 of which were shared by either CVX or XOM

-8/12/2003: CVX and COP

-9/23/2003: CVX and COP

-3/1/2004: XOM and COP

-3/5/2004: XOM and CVX

-9/14/2004: CVX and COP

-9/20/2004: XOM and COP

From 9/2/2004 to 9/29/2004: 1 XOM jump, 4 CVX jumps, 3 COP jumps

-11/21/2006: XOM and COP, with CVX on 11/22/2006

-From 10/4/2004 to 10/29/2004:

3 XOM jumps, 2 CVX jumps, 2 COP jumps (none on the same day)

-XOM and COP experience price jumps on Tuesday 11/21, with CVX jumping on Wednesday 11/22

-Possible reasons:

-On Tuesday, Trans-Alaska pipeline slowed to 25% of normal 800,000 barrel-a-day capacity due to heavy winds

-Traders worried about shutdowns at XOM’s Baytown, TX refinery— America’s biggest at 500,000 barrels-a-day

-Traders looking to clear up books before Thanksgiving holiday on Thursday

-On Wednesday, U.S. Energy Dept releases the information that crude oil inventories swelled by 5.1 million barrels last week

-Gunmen in Nigeria seized seven hostages from an Italian supply vessel outside the delta on Wednesday

-Price of oil climbs nearly $1 on Tuesday and $.93 on Wednesday

OLS: CVX jumping on Wednesday 11/22ZCVX=.253207*ZXOM + .13269*ZCOP + .29 +ei

-Conclusion: We cannot use the results from a Probit model using only dummy variables indicating whether or not a jump occurs.

Probit: Pr( using only ZCVX>3.09)=Φ(.096*ZCOP + .16491*ZXOM – 2.05)

Example: Let ZCOP=mean(ZCOP)~.4849,

-if ZXOM increases from 0 to 1, then Pr(ZCVX>3.09) increases by ~10%

- Using Crude Oil Futures to check for correlation, checking for co-jumps, introduce into probit model
- More familiarity with the practices of the oil industry, especially their trading desk operation to determine how they deal with oil price volatility
- Can we use the implied volatility of same industry companies and oil futures to forecast volatility using the HAR-RV-CJ model?

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