Predicting Futures Price And Contract Portfolios Using The ARIMA Model: A Case of Nigeria’s Bonny Light and Forcados
DOI:
https://doi.org/10.35877/454RI.qems139Abstract
Market prediction has been the goal of many study as investors sought traded assets since the inception of the capital market. With each asset exchanged for money, investors seek to stay ahead the market trend in the hope of amassing profits. Businesses’ growth (rise/fall) is evident upon their response to market behaviour. Thus, accurate prediction of the market often offers as its reward, enlarged financial portfolio. Market participants thus, seek to manage the risks associated with asset prices and its volatility, which can be rippled with chaos and complex tasks arising from a demand-supply curve. We seek to model the Oil market and forecast its price direction supported with empirical evidence using ARIMA model to analyze inputs in search of an optimal solution. We adopt the OPEC model to: (a) predict spot/futures-prices, (b) investigate why previous prediction was poor and price plummeted, and (c) compares value(s) from Ojugo and Yoro (2020) and Ojugo and Allenotor (2017). Results shows demand-supply curve rise (and a price rise) even though the policies and trend in real life scenario is currently experiencing a price plummet.
References
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[29] Allenotor, D., Ojugo, A.A., (2017). A financial option based price and risk management model for pricing electrical energy in Nigeria, Adv. in Multidisciplinary & Sci. Res. J., 3(2): pp79-90
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[33] Ojugo, A.A and Ofualagba, G.O., (2016). Repositioning FUPRE Petroleum Varsity to tackle challenges in the oil and gas sector of Nigeria, Guardian Newspaper
[34] Dees, S., (2015). Credit, asset prices and business cycles at the global level: A GVAR approach, The Energy Journal, 25(4), pp67-90, doi: 10.2307/41323358
[35] Abosedra, S and Baghestani, H., (2004). On predictive accuracy of futures prices, Energy Policy, pp. 1389-1393.
[36] Behmiri, N.B and Manso, J.R.P., (2013). Crude oil forecasting techniques: a comprehensive review of literature, Alternative Investment Analyst Review in Social Science Review Network, doi: 10.2139/ssrn.2275428, 30-48
[37] Moshiri, S and Foroutan, F., (2005). Forecasting nonlinear oil futures prices, The Energy Journal, 27: 81-95
[38] Cherry, H. (2007). Financial Economics, 1st Ed. Actuarial Study Materials, NY: 3217 Wynsum Ave., Merrick.
[2] A.A. Ojugo, D. Allenotor, D., Forecasting price direction and spread options in oil volatility, Comp., Info., Sys. Dev. Info. & Allied Res. Journal, 8(2): pp93-102, 2017, [web] www.isteams.net/copy-of-2016-archive-cisdi-journal
[3] A.A. Ojugo., O.D. Otakore, Investigating the unexpected price plummet and volatility rise in energy market: comparative study of machine learning approaches, Quantitative Economics & Management Studies, 1(3), doi: 10.35877/454RI.qems12119, 2020, [web]: http://jurnal.ahmar.id/index.php/qems/index
[4] Ojugo, A.A, (2016). Spread options pricing and hedging for Oil market: a case of Nigeria Bonny Light, Lecture Series of the Federal University of Petroleum Resources Effurun, Nigeria.
[5] Azoff, M., (1994). Neural network time series forecasting of financial markets, John Wiley & Sons, Chichester.
[6] Behmiri, N.B and Manso, J.R.P., (2013). Crude oil forecasting techniques: a comprehensive review of literature, Alternative Investment Analyst Review in Social Science Review Network, doi: 10.2139/ssrn.2275428, 30-48
[7] Bopp, E and Sitzer, S., (1987). Are petroleum futures prices good predictors of cash value?, Journal of Futures Market, 705-719, 1987.
[8] Abosedra, S and Baghestani, H., (2004). On predictive accuracy of futures prices, Energy Policy, pp. 1389-1393.
[9] Allenotor, D., Ojugo, A.A., (2017). A financial option based price and risk management model for pricing electrical energy in Nigeria, Adv. in Multidisciplinary & Sci. Res. J., 3(2): pp79-90, [web]: www.isteams.net/copy-of-aims-2016-series, http://docs.wixstatic.com/ugd/185b0a_c1c1adbeb71a45d88fa700ac6e0c9d4a.pdf
[10] Gabillon, J., (1991). Terms of oil future prices, Oxford institute of Energy Studies, ISBN: 0-948061-59-6
[11] Vanstone, B., (2005). Trading in Australian stock market using artificial neural networks, McGraw Hill publication
[12] Verleger, P.K. (1993). Adjusting to Volatile Energy Prices, Institute for International Economics, Washington DC.
[13] Tang, L and Hammoudeh, S., (2002). An empirical exploration of the world oil price under the target zone model, Energy Economics, 24(6), pp577-596
[14] Kaufmann, R.K., Dees, S., Karadeloglou, P., Sanchez, M., (2004). Does OPEC matter? An Econometric analysis of oil prices, The Energy Journal, 25(4), pp67-90, doi: 10.2307/41323358
[15] Dees, S., Kaufmann, R.K., Karadeloglou, P., Sanchez, M., (2007). Modeling the world oil market: Assessment of a quarterly econometric model, Energy Policy, 35(1), pp178-191, doi: 10.1016/j.enpol.2005.10.017
[16] Chevillon, G and Christine, R., (2009). Physical market determinants of the price of crude oil and the market premium, Energy Economics, 31(4), pp537-549
[17] Yang et al, (2002). Market determinants of the price of crude oil and the market volatilities, Energy Economics, 31(4), pp537-549
[18] Mirmirani, S., Li, C, H., (2003). A comparison of VAR and neural networks with genetic algorithm in forecasting price of oil, Advances in Econometrics, 19), pp62-67
[19] Laurenti, M and Fernandes, J.M.M., (2012). Pricing crude oil calendar spread option, Master’s Degree Thesis, Department of Finance, Copenhagen Business School
[20] Chan, K., (1992). A further analysis of the lead-lag relationship between the cash market and stock index futures market, The Review of Financial Studies, 7(6): 123-152.
[21] French, M.W., (2005). Why and When do Spot Prices of Oil Revert to Futures Price Levels?, Finance and Economics Discussion Series Divisions of Res. & Statistics and Monetary Affairs, Federal Reserve Board, Washington
[22] Silvapulle, P and Mossa, A., (1999). The relation between spot and future prices: Evidence from the crude oil market, The Journal of Futures Markets, 19(2), 175-193.
[23] Cherry, H. (2007). Financial Economics, 1st Ed. Actuarial Study Materials, NY: 3217 Wynsum Ave., Merrick.
[24] International Energy Agency (2009) Analysis of the impact of high oil prices on the global economy, Annual Report
[25] Dontwi, I.K., Dedu, V.K and Davis, R., (2010). Application of options in hedging of crude oil price risk, American Journal of Social and Management Sciences, ISSN: 2156-1540, doi: 10.5251/ajsms.2010.1.1.67.74
[26] Moshiri, S and Foroutan, F., (2005). Forecasting nonlinear oil futures prices, The Energy Journal, 27: 81-95
[27] Labonte, M., (2004). The effect of oil shocks on the economy: A review of the empirical evidence, RL31608.
[28] McNeils, D., (2005). Neural networks in finance gaining predictive edge in the market, Elsevier Academic Press.
[29] Allenotor, D., Ojugo, A.A., (2017). A financial option based price and risk management model for pricing electrical energy in Nigeria, Adv. in Multidisciplinary & Sci. Res. J., 3(2): pp79-90
[30] Coppola, A., (2007). Forecasting oil price movements: exploiting the information in futures market, 34, http://papers.ssrn.com/paper.taf?paper_id=967408
[31] Rouah, F.D and Vainberg, G., (2007). Option pricing and volatility using Excel VBA, John Wiley and Sons, NY, ISBN: 978-0-471-79464-6.
[32] Oghenesode, L and Ojugo, A.A., (2018). Predicting Nigeria crude oil price using ARIMA model, Unpublished Bachelor’s Thesis, Department of Maths. and Computer Science, Federal University of Petroleum Resources Effurun
[33] Ojugo, A.A and Ofualagba, G.O., (2016). Repositioning FUPRE Petroleum Varsity to tackle challenges in the oil and gas sector of Nigeria, Guardian Newspaper
[34] Dees, S., (2015). Credit, asset prices and business cycles at the global level: A GVAR approach, The Energy Journal, 25(4), pp67-90, doi: 10.2307/41323358
[35] Abosedra, S and Baghestani, H., (2004). On predictive accuracy of futures prices, Energy Policy, pp. 1389-1393.
[36] Behmiri, N.B and Manso, J.R.P., (2013). Crude oil forecasting techniques: a comprehensive review of literature, Alternative Investment Analyst Review in Social Science Review Network, doi: 10.2139/ssrn.2275428, 30-48
[37] Moshiri, S and Foroutan, F., (2005). Forecasting nonlinear oil futures prices, The Energy Journal, 27: 81-95
[38] Cherry, H. (2007). Financial Economics, 1st Ed. Actuarial Study Materials, NY: 3217 Wynsum Ave., Merrick.
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Published
2020-08-22
How to Cite
Ojugo, A. A., & Yoro, R. E. (2020). Predicting Futures Price And Contract Portfolios Using The ARIMA Model: A Case of Nigeria’s Bonny Light and Forcados . Quantitative Economics and Management Studies, 1(4), 237–248. https://doi.org/10.35877/454RI.qems139
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