Study On The Impact Of Geopolitical Risks On The Forecast Of Crude Oil Volatility

As an important strategic resource,crude oil has a great influence on the economic development of all countries in the world.With the deepening of economic globalization,the financial attribute of crude oil,a special commodity,is becoming stronger and stronger.The impact of crude oil price volatility on the economy is not only limited to the real economy,but also involves the stock,futures,exchange rate and other financial markets.The crude oil market plays a leading role in the global economic development,and its volatility plays an important role in portfolio,asset pricing and risk management.Appropriate volatility can promote a more rational allocation of resources.However,excessive volatility may affect the interests of all parties and lead to financial crisis,this is of vital importance to the future of the country and the people's livelihood.It is also an important and complex issue that the financial academic,practical and government pay close attention to.The research on volatility models has been very rich,among which GARCH model is a popular one.This paper first introduces the traditional GARCH model,however,considering that oil volatility have structural transformation characteristics,the MS-GARCH model has also received extensive attention and application.From the research point of view,the MS-GARCH model has been widely used in domestic and foreign stocks,futures,oil and other markets.The empirical results also show the existence of the volatility structure of financial market returns.Further,considering that the structural transition probability in the MS-GARCH model does not have time-varying characteristics,a new type of TVTP-GARCH model has begun to be widely used in the study of financial market volatility.Geopolitical risk has always existed and had an important impact,but until 2016,when Caldara and Iacoviello proposed a specific method to construct a geopolitical risk index to quantify geopolitical risk,which has attracted wider attention.In the index,geopolitical events such as elections,wars,and terrorist attacks have a significant impact on the global economy,as well as on the price volatility of the oil market.This article is based on the new consideration of geopolitical risk to further study the volatility characteristics of the crude oil market.First,the article directly adds geopolitical risk index as an exogenous variable to the GARCH model to form the GARCH-X model,and explores the direct influence of geopolitical risk factors on volatility.Next,considering the effect of geopolitical risk on the structural transformation probability,geopolitical risk index is introduced into the TVTP-GARCH model.In particular,considering the asymmetric effect of geopolitical risk on oil volatility,this paper constructs an AS-TVTP-GARCH model,which can effectively consider the asymmetric effect of geopolitical risk on transition probability.Through in-sample estimation and out-of-sample prediction of the above models,the article explores whether the improved model has better sample fitting ability and prediction ability.Moreover,MCS method is used to test the robustness of the model.The results show that the volatility structure of crude oil market is not single,but there are two kinds of structure which can transfer each other,and the probability of structural transfer is not fixed,but changes with time under the influence of geopolitical risks,it is also found that geopolitical risk has an asymmetric effect on the transfer probability.