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Methods of Forecasting the Prices of the Underlying Asset in the Energy and Aluminum Markets

aPlekhanov Russian University of Economics, Russia
bUniversity of the Ryukyus, Japan

Renewable Energy Investments for Sustainable Business Projects

ISBN: 978-1-80382-884-8, eISBN: 978-1-80382-883-1

Publication date: 13 April 2023


In scientific works on forecasting price volatility (of which the overwhelming majority, in comparison with works on price forecasting) for energy products: crude oil, natural gas, fuel oil, the authors compared the effectiveness of forecasting models of generalized autoregressive heteroscedasticity (Generalized Autoregressive Conditional Heteroscedastic model, GARCH) with regression of support vectors for futures contracts. GARCH models are a standard tool used in the literature on volatility, and the vector machine nonlinear regression model is one of the machine learning methods that has been gaining huge popularity in recent years. The authors have shown that the accuracy of volatility forecasts for energy and aluminum prices significantly depends on the volatility proxy used. The model with correctly defined parameters can lead to fewer prediction errors than GARCH models when the square of the daily yield is used as an indicator of volatility in the evaluation. In addition, it is difficult to choose the best model among GARCH models, but forecasts based on asymmetric GARCH models are often the most accurate. The work is based on a model with a representative investor who solves the problem of optimizing utility in a two-period model. The key assumption of the model is the homogeneity of energy and aluminum investor preferences, that is, preferences do not change over time. There are also works with an attempt to solve this problem in a continuous state space. A completely new theory has been put forward that allows predicting the movement of the underlying asset without using historical data, so this topic is very relevant.



Philippov, D. and Senjyu, T. (2023), "Methods of Forecasting the Prices of the Underlying Asset in the Energy and Aluminum Markets", Dinçer, H. and Yüksel, S. (Ed.) Renewable Energy Investments for Sustainable Business Projects, Emerald Publishing Limited, Leeds, pp. 177-189.



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Copyright © 2023 David Philippov and Tomonobu Senjyu. Published under exclusive licence by Emerald Publishing Limited