Forecasting the Fluctuation of Oil Price Based on Hull-White Model

An important application of the Binary tree model is the Hull-White model. It may be used to forecast the fluctuation range of the oil price in future, thus the unusual circumstance in the price changing can be discovered and the reason may be traced. But when it is in use, judging will go first that whether the increasing probability p and the decreasing probability q are consistent and close consistent or not. In another way, it should satisfy the conditions of the Hull-White model: p = q, because it may make the forecast data distortion when p and q deviate largely. In this article the improvement model will be proposed in the foundation of the original model. The probabilities of increase and decrease will be taken into consideration and the oil prices of 1260 weeks, from January 3rd, 1986 to February 12th, 2010, will be taken as reference to forecast and analysis. How to apply the improved model in the forecast of the fluctuations in oil prices is proposed innovative as well.