A multi-model approach for describing crude oil price dynamics

This paper develops a stochastic multi-model approach to describe the dynamics of crude oil prices. Based on the hypothesis that crude oil price dynamics reflects the activity of a competitive market with multiple equilibria, a mean-reversion multi-model incorporating two competitive processes with corresponding drifts and volatilities is investigated. Regimen-switching between the two standard stochastic processes is modeled as a simple process that describes extreme (e.g., social, political, etc.) events occurring scarcely but influencing on the market evolution.