Abstract
Oil futures prices, which have undergone major changes, maintain an important research topic for academics. Oil prices, which tended to decline for political and economic reasons in the 1990s, fell to as low as 12 US dollars after the Asian Crisis, rising again in 2002. The oil prices, which have fallen again after the 2008 crisis, have not reached the level of 100 US dollars again. This study explains the volatility of petroleum futures contracts as low and high volatility in two regimes by the Markov Regime Switching GARCH model. In the study based on 7077 observations in a long sample period from January 1990 to October 2017, the transition probabilities and durations between two different volatility regimes of oil futures prices are explained. The volatility of the oil futures contract is switching between two regimes with low volatility and high volatility depending on a markov process.
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