Dynamics of Energy Prices and Uncertainty

Energy commodities are of paramount interest to global economic prosperity because they are the most widely used source of energy. They are constantly changing due to the constant influx of new technologies, environmental pressures and the geopolitical importance of controlling oil supplies. In recent years, large fluctuations in energy prices have been a major concern for both market participants and regulators, as price uncertainty has a significant impact on the economy and measuring and predicting the variability of energy prices is essential for pricing derivatives, asset allocation or risk management, but is also a key factor in understanding fluctuations in stock prices, growth rates, inflation, employment and exchange rates. While an increasing number of authors pay considerable attention to forecasting prices and uncertainty, all approaches are challenged by severe limitations imposed by model assumptions. Determining the true data-generating process of volatility dynamics becomes a challenging and open question of great priority to market participants, financial analysts and policymakers.