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Estimating Value-at-Risk and expected shortfall of metal commodities: Application of GARCH-EVT method

Author

Listed:
  • Khan, Maaz

    (COMSATS University Islamabad, Pakistan)

  • Khan, Mrestyal

    (Lecturer, Balochistan University of Information Technology, Engineering and Management Sciences, Pakistan)

  • Irfan, Muhammad

    (Associate Professor and Deputy Dean, Balochistan University of Information Technology, Engineering and Management Sciences, Pakistan)

Abstract

The metal markets have become extremely competitive and highly volatile due to financial globalisation. Therefore, in this study, the Value-at-Risk (VaR) and expected shortfall (ES) are estimated for the metal markets. A two-stage dynamic extreme value theory (EVT) method has been adopted along with the GARCH (1, 1) model to identify the pre-specified threshold for the metal market by using high-frequency returns data of 15-minute intervals ranging from 1st January, 2018 to 24th September, 2021, which provides accurate information about metal market volatility and tail distribution. Moreover, the empirical findings confirm the presence of a high level of volatility persistence in the metal market, especially in the financial returns of gold. Furthermore, silver metal returns exhibit the highest VaR compared to other metals in the market. The empirical results could assist financial investors and portfolio managers to minimise and control the potential risk in the market.

Suggested Citation

  • Khan, Maaz & Khan, Mrestyal & Irfan, Muhammad, 2023. "Estimating Value-at-Risk and expected shortfall of metal commodities: Application of GARCH-EVT method," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 16(2), pages 189-199, August.
    • Handle: RePEc:aza:rmfi00:y:2023:v:16:i:2:p:189-199
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    More about this item

    Keywords

    Value-at-Risk; extreme value theory; GARCH; metal market;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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