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Assessment of Density Forecast for Energy Commodities in Post-Financialization Era

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  • Bisht Deepak
  • Laha, A. K.

Abstract

Probability density for the future price of an asset can be estimated from historical asset prices or exchange-traded derivatives. In this paper, prices of futures and options contracts that embed the forward-looking information are used to obtain the density forecast of the underlying asset under Q- measure. Along with Probability Integral Transform (PIT), various statistical testes are conducted to determine whether the option-implied density forecast is unbiased under the real world measure, P. We have worked with the settlement prices of NYMEX traded futures and options contracts for WTI crude oil and Henry Hub natural gas during the post-financialization period of 2006 to 2013. Statistical analysis of the PIT values indicate that the option-implied density forecast is unbiased under the real world measure, P.

Suggested Citation

  • Bisht Deepak & Laha, A. K., 2017. "Assessment of Density Forecast for Energy Commodities in Post-Financialization Era," IIMA Working Papers WP 2017-07-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:14574
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    References listed on IDEAS

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