Forecasting ethanol market volatility: new evidence from the corn implied volatility index

摘要

Global ethanol production has expanded significantly in recent years as a result of a sharp rise in the worldwide crude oil price. Currently, the USA is the leading producer and exporter of ethanol fuel globally and hence fluctuations in ethanol price could play a vital role in influencing the country's overall bioenergy policy. It is hence important to model and forecast the US ethanol price precisely to minimize the market risk. Surprisingly, this issue has not received considerable attention in the biofuel and bioenergy literature. To rectify this situation, the present study aims to model and predict US ethanol market volatility using the recently published corn price implied volatility (CIV) index. Employing a set of generalized autoregressive conditional heteroskedasticity (GARCH) volatility approaches, we show that the information content of CIV index is a significant factor in explaining the variation in the ethanol price. The inclusion of the CIV index also generally improves the volatility forecasts of the US ethanol price index. (c) 2018 Society of Chemical Industry and John Wiley & Sons, Ltd