Advanced Search
MyIDEAS: Login to save this paper or follow this series

Risk Management of Precious Metals

Contents:

Author Info

  • Shawkat Hammoudeh

    (LeBow College of Business, Drexel University)

  • Farooq Malik

    (College of Business, University of Southern Mississippi)

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)

Abstract

This paper examines volatility and correlation dynamics in price returns of gold, silver, platinum and palladium, and explores the corresponding risk management implications for market risk and hedging. Value-at-Risk (VaR) is used to analyze the downside market risk associated with investments in precious metals, and to design optimal risk management strategies. We compute the VaR for major precious metals using the calibrated RiskMetrics, different GARCH models, and the semi-parametric Filtered Historical Simulation approach. The best approach for estimating VaR based on conditional and unconditional statistical tests is documented. The economic importance of the results is highlighted by assessing the daily capital charges from the estimated VaRs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.kier.kyoto-u.ac.jp/DP/DP765.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 765.

as in new window
Length: 28pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:kyo:wpaper:765

Contact details of provider:
Postal: Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501
Phone: +81-75-753-7102
Fax: +81-75-753-7193
Email:
Web page: http://www.kier.kyoto-u.ac.jp/eng/index.html
More information through EDIRC

Related research

Keywords: Precious metals; conditional volatility; risk management; value-at-risk.;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. McAleer, M.J., 2008. "The ten commandments for optimizing value-at-risk and daily capital charges," Econometric Institute Research Papers EI 2008-32, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  2. GIOT, Pierre & LAURENT, Sébastien, . "Modelling daily Value-at-Risk using realized volatility and ARCH type models," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1708, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, Elsevier, vol. 31(3), pages 307-327, April.
  4. Shawkat Hammoudeh & Yuan Yuan & Michael McAleer & Mark A. Thompson, 2009. "Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-684, CIRJE, Faculty of Economics, University of Tokyo.
  5. Michael McAleer & Juan-Angel Jimenez-Martin & Teodosio Perez-Amaral, 2009. "A Decision Rule to Minimize Daily Capital Charges in Forecasting Value-at-Risk," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-159, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  6. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 45(2), pages 217-229, 05.
  7. Jonathan Andrew Batten & Brian Lucey, 2010. "Volatility in the gold futures market," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(2), pages 187-190.
  8. Gita Persand & Chris Brooks, 2003. "Volatility forecasting for risk management," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(1), pages 1-22.
  9. Pérignon, Christophe & Deng, Zi Yin & Wang, Zhi Jun, 2008. "Do banks overstate their Value-at-Risk?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(5), pages 783-794, May.
  10. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value-at-Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, American Finance Association, vol. 57(3), pages 1093-1111, 06.
  11. Giovanni Barone-Adesi & Kostas Giannopoulos & Les Vosper, 2002. "Backtesting Derivative Portfolios with Filtered Historical Simulation (FHS)," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 8(1), pages 31-58.
  12. Sari, Ramazan & Hammoudeh, Shawkat & Soytas, Ugur, 2010. "Dynamics of oil price, precious metal prices, and exchange rate," Energy Economics, Elsevier, Elsevier, vol. 32(2), pages 351-362, March.
  13. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  14. Juan-�ngel Jiménez-Martín & Michael McAleer & Teodosio Pérez-Amaral, 2009. "The Ten Commandments For Managing Value At Risk Under The Basel Ii Accord," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 23(5), pages 850-855, December.
  15. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-24, Board of Governors of the Federal Reserve System (U.S.).
  16. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 28(04), pages 535-551, December.
  17. Michael Mcaleer & Bernardo da Veiga, 2008. "Forecasting value-at-risk with a parsimonious portfolio spillover GARCH (PS-GARCH) model," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 27(1), pages 1-19.
  18. Michael McAleer & Bernardo da Veiga, 2008. "Single-index and portfolio models for forecasting value-at-risk thresholds," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 27(3), pages 217-235.
  19. Ewing, Bradley T. & Malik, Farooq, 2005. "Re-examining the asymmetric predictability of conditional variances: The role of sudden changes in variance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(10), pages 2655-2673, October.
  20. Michael McAleer & Les Oxley, 2005. "The Ten Commandments for Academics," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 19(5), pages 823-826, December.
  21. Keith Kuester & Stefan Mittnik & Marc S. Paolella, 2006. "Value-at-Risk Prediction: A Comparison of Alternative Strategies," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 53-89.
  22. David Cabedo, J. & Moya, Ismael, 2003. "Estimating oil price 'Value at Risk' using the historical simulation approach," Energy Economics, Elsevier, Elsevier, vol. 25(3), pages 239-253, May.
  23. Chng, Michael T., 2009. "Economic linkages across commodity futures: Hedging and trading implications," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(5), pages 958-970, May.
  24. Pérignon, Christophe & Smith, Daniel R., 2010. "The level and quality of Value-at-Risk disclosure by commercial banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(2), pages 362-377, February.
  25. Hammoudeh, Shawkat & Yuan, Yuan, 2008. "Metal volatility in presence of oil and interest rate shocks," Energy Economics, Elsevier, Elsevier, vol. 30(2), pages 606-620, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Chang, Chia-Lin & Chang, Jui-Chuan Della & Huang, Yi-Wei, 2012. "Dynamic Price Integration in the Global Gold Market," MPRA Paper 41627, University Library of Munich, Germany.
  2. Arouri, Mohamed El Hedi & Hammoudeh, Shawkat & Lahiani, Amine & Nguyen, Duc Khuong, 2013. "On the short- and long-run efficiency of energy and precious metal markets," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 832-844.
  3. repec:ipg:wpaper:9 is not listed on IDEAS
  4. Walid Chkili & Shawkat Hammoudeh & Duc Khuong Nguyen, 2013. "Long memory and asymmetry in the volatility of commodity markets and Basel Accord: choosing between models," Working Papers, Department of Research, Ipag Business School 2013-009, Department of Research, Ipag Business School.
  5. Arouri, Mohamed El Hedi & Hammoudeh, Shawkat & Lahiani, Amine & Nguyen, Duc Khuong, 2012. "Long memory and structural breaks in modeling the return and volatility dynamics of precious metals," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 52(2), pages 207-218.
  6. Walid Chkili & Shawkat Hammoudeh & Duc Khuong Nguyen, 2014. "Volatility forecasting and risk management for commodity markets in the presence of asymmetry and long memory," Working Papers, Department of Research, Ipag Business School 2014-389, Department of Research, Ipag Business School.
  7. Mohamed El Hedi Arouri & Amine Lahiani & Duc Khuong Nguyen, 2014. "World gold prices and stock returns in China: insights for hedging and diversification strategies," Working Papers, Department of Research, Ipag Business School 2014-110, Department of Research, Ipag Business School.
  8. Dominik Krezolek, 2012. "Non-Classical Measures of Investment Risk on the Market of Precious Non-Ferrous Metals Using the Methodology of Stable Distributions," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, Uniwersytet Mikolaja Kopernika, vol. 12, pages 89-104.
  9. A. Khalifa & S. Hammoudeh & E. Otranto & S. Ramchander, 2012. "Volatility Transmission across Currency, Commodity and Equity Markets under Multi-Chain Regime Switching: Implications for Hedging and Portfolio Allocation," Working Paper CRENoS 201214, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  10. repec:ipg:wpaper:201409 is not listed on IDEAS
  11. Belousova, Julia & Dorfleitner, Gregor, 2012. "On the diversification benefits of commodities from the perspective of euro investors," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(9), pages 2455-2472.
  12. Mihaela NICOLAU & Giulio PALOMBA & Ilaria TRAINI, 2013. "Are Futures Prices Influenced by Spot;Prices or Vice-versa? An Analysis of Crude;Oil, Natural Gas and Gold Markets," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 394, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  13. Hood, Matthew & Malik, Farooq, 2013. "Is gold the best hedge and a safe haven under changing stock market volatility?," Review of Financial Economics, Elsevier, Elsevier, vol. 22(2), pages 47-52.
  14. Victoria Gabriela ANGHELACHE & Dumitru Cristian OANEA & Bogdan ZUGRAVU, 2013. "General Aspects Regarding the Methodology for Prediction Risk," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(2), pages 66-72, May.
  15. Demiralay, Sercan & Ulusoy, Veysel, 2014. "Value-at-risk Predictions of Precious Metals with Long Memory Volatility Models," MPRA Paper 53229, University Library of Munich, Germany.
  16. Hammoudeh, Shawkat & Araújo Santos, Paulo & Al-Hassan, Abdullah, 2013. "Downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 25(C), pages 318-334.
  17. Bogdan ZUGRAVU & Dumitru Cristian OANEA & Victoria Gabriela ANGHELACHE, 2013. "Analysis Based on the Risk Metrics Model," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(2), pages 145-154, May.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kyo:wpaper:765. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ryo Okui).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.