Mideast crisis and pricing in the oil futures market

Futures prices and the corresponding expected future cash price on crude oil markets differ. The difference is hypothesized to be due to a time varying risk premium where risk is due to either cash price volatility, oil output volatility or unanticipated oil price movement. And this risk is measured by the conditional variance of the forementioned sources of risk. Using the ARCH (Autoregressive Conditional Heterosckdasticity) model and its extensions this dissertation addresses the determination of the time varying risk premium. Political unrest in the Mideast oil exporting countries is hypothesized to be a determinant of the time varying risk premium in the oil futures market. The empirical tests allow informative inferences to be drawn on the role of political unrest in pricing oil.