A Markov switching model of the conditional volatility of crude oil futures prices

摘要

This paper examines the temporal behaviour of volatility of daily returns on crude oil futures using a generalised regime switching model that allows for abrupt changes in mean and variance, GARCH dynamics, basis - driven time - varying transition probabilities and conditional leptokurtosis. This flexible model enables us to capture many complex features of conditional volatility within a relatively parsimonious set-up. We show that regime shifts are clearly present in the data and dominate GARCH effects.