Extreme Value Analysis of Daily Canadian Crude Oil Prices
AbstractCrude oil markets are highly volatile and risky. Extreme value theory (EVT), an approach to modelling and measuring risks under rare events, has seen a more prominent role in risk management in recent years. This paper presents an application of EVT to the daily returns of crude oil prices in the Canadian spot market between 1998 and 2006. We focus on the peak over threshold method by analyzing the generalized Pareto-distributed exceedances over some high threshold. This method provides an effective means for estimating tail risk measures such as Value-at-Risk and Expected Shortfall. The estimates of risk measures computed under different high quantile levels exhibit strong stability across a range of the selected thresholds. At the 99th quantile, the estimates of VaR are approximately 6.3% and 6.8% for daily positive and negative returns, respectively.
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Bibliographic InfoPaper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 0708.
Length: 24 pages
Date of creation: 09 Oct 2007
Date of revision:
Note: ISSN 1485-6441
Contact details of provider:
Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
Web page: http://web.uvic.ca/econ
More information through EDIRC
Crude oil; daily returns; market volatility; extreme value analysis;
Other versions of this item:
- Feng Ren & David Giles, 2010. "Extreme value analysis of daily Canadian crude oil prices," Applied Financial Economics, Taylor and Francis Journals, vol. 20(12), pages 941-954.
- C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-13 (All new papers)
- NEP-ENE-2007-10-13 (Energy Economics)
- NEP-RMG-2007-10-13 (Risk Management)
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- He, Angela W.W. & Kwok, Jerry T.K. & Wan, Alan T.K., 2010. "An empirical model of daily highs and lows of West Texas Intermediate crude oil prices," Energy Economics, Elsevier, vol. 32(6), pages 1499-1506, November.
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