Predicting the heating oil spread, speculation in the oil market

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Abstract Ky words: crack spread, mde oil, heating oil, mz,tLtivariate GARCH This thesis was performed using daily one-month future prices from 1996 until 2004; on the two assets that make up the heating oil spread i.e. crude oil and heating oil, traded on the New York mercantile exchange (NYMEX). The goal of the study was to, by designing future strategies and predicting the variance and volatility of the assets, see if it is possible to profit on the spread. The variance and covariance was prognosed using a multivariate GARCH model. The bivariate model seemed to fit the data very well shown by the Akaike information criterion - which was significant at the 1% level. Several strategies were tested to see if they drastically could beat a passive strategy. The strategies yearly returns were averaging around 20% however the short-term risk is substanti...