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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. - r t,j is log return, M is total # of observations per day.

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Presentation Transcript
slide2
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
r t j is log return m is total of observations per day
-rt,j is log return, M is total # of observations per day
  • Realized Variance
  • Realized Bi-Power Variation
slide6
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
slide8

XOM:29

CVX:41

COP:38

slide11

-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

slide12

-1/13/2003: XOM and CVX

-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)

slide13

-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

slide15

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

slide16

Probit: Pr(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%

slide18
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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