Working Papers
Proposing the Method to Predict the Breakeven Oil Price for Hedging and Sustainable Finance in Oil Exporting Countries: An Empirical Study in Algeria Using the Blackscholes Model
No.
1418
Publisher
ERF
Date
November, 2020
Topic
C. Mathematical and Quantitative Methods
H6. National Budget, Deficit, and Debt
H3. Fiscal Policies and Behavior of Economic Agents
H. Public Economics
Oil-exporting countries suffer from the volatility of oil prices, especially in the recent period, which makes them vulnerable to risk trying to find a hedging strategy. This paper aims to propose a new method to predict the fiscal breakeven oil price, for oil-exporting countries based on an empirical study using the Black-Scholes model in Algeria. To achieve our examination we use the oil prices with daily data during the period of 02/01/2013 to 21/09/2020, the fiscal breakeven oil prices and external breakeven oil prices from 2000 to 2020, which are determined by the International Monetary Fund (IMF); in addition to the fiscal breakeven oil prices of Algeria. The main results of our study highlight that there is a strong correlation between the fiscal breakeven prices based on the Black-Scholes model and the external breakeven price, and weak correlation with the IMF’s fiscal breakeven prices, which means that the Black-Scholes model is outperforming to predict the fiscal oil prices in comparison with the IMF method. The results also indicate that there is a negative correlation between the B-S and the reference prices indicated in Algeria's public budget.
Research Associates
Naima Bentouir
Assistant Professor, Ain Témouchent University, Algeria
Authors
Ali Bendob
Financial Sector Specialist, Arab Monetary Fund