Evidence of infinite and finite jump processes in commodity futures prices: Crude oil and natural gas

Abstract

We examine the frequency and character of price jumps in front month oil and natural gas futures prices. Prices are sampled every five seconds over the period 2006–2014. Our test results indicate that jumps in crude oil and natural gas futures prices can be decomposed into an infinite activity jump diffusion process and a less frequent but larger jump process. We also find that we cannot reject the hypothesis that Brownian motion is also present in both return series. The results are based on a battery of tests that are “model free”. We further find that jumps account for respectively 36 and 41 percent of the realized variances of the crude oil and the natural gas returns.