Volatility Forecasting of the Crude Oil Market

Risk analysis of the crude oil market has always been a core research problem important to both practitioners and academia. Risks arise primarily from changes in oil prices. During the 1970s and 1980s there were a number of steep increases in oil prices; these price fluctuations reached new peaks in 2007 when the price of crude oil doubled during the financial crisis, and double digit fluctuations continued between 2007 and 2008 for short periods. These fluctuations would not be worrisome if oil was not such an important commodity in the world’s economy. But when oil prices become too high and their volatility increases, they have a direct impact on the economy in general, and affect the government decisions regarding market regulation, thus impacting firm and individual consumer incomes.1