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Energy commodities: A study on model selection for estimating Value-at-Risk

Author

Listed:
  • Amaro, Raphael

    (University of Aveiro, Aveiro, Portugal)

  • Pinho, Carlos

    (University of Aveiro, Aveiro, Portugal)

Abstract
Changes in commodity prices can be transmitted directly to the real economy through changes in the marginal cost of production. Therefore, it is extremely important to create some mechanism to protect against these movements in the commodities futures market. Exposure in this market comes along with tail risk, which must be measured and controlled using a risk measure. To help economic agents, this research provides a common statistical specification that can be used to reliably predict the Value-at-Risk of four important energy commodities. For this, the predictions of a range of 48 competing models, composed of four heteroskedastic specifications, six conditional distributions, and a Markov chain with up to two regimes, were compared using various statistical tests, and the model with the best average results was preferred.

Suggested Citation

  • Amaro, Raphael & Pinho, Carlos, 2022. "Energy commodities: A study on model selection for estimating Value-at-Risk," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 68, pages 5-27.
    • Handle: RePEc:ris:apltrx:0456
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    More about this item

    Keywords

    commodities; Value-at-Risk; GARCH; Markov-switching; probability distributions;
    All these keywords.

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment

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