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Fat Tails, Value at Risk, and the Palladium Returns

Author

Listed:
  • Jianhua Ding

    (Jianghan University, China)

  • Turen Guo

    (Xiangnan College, China)

  • Bin Guo

    (University of Cologne, Germany)

Abstract

The past decade has witnessed the rapid growing of the world palladium market. Thus, it is even more important to develop effective quantitative tools for risk management of palladium assets at this moment. In this paper, the authors investigated five different types of widely-used statistical distributions and employ the industry standard risk measurement, value at risk (VaR), for risk management of daily palladium spot returns. First the four different criteria were applied to compare the goodness of fit of the five distributions, and then calculate the VaRs based on the parameters estimated from the first step. The results indicate the skewed t distribution has the best in-sample fitting and generate VaR values closest to the nonparametric historical VaR values.

Suggested Citation

  • Jianhua Ding & Turen Guo & Bin Guo, 2018. "Fat Tails, Value at Risk, and the Palladium Returns," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 7(2), pages 95-103, May.
  • Handle: RePEc:ods:journl:v:7:y:2018:i:2:p:95-103
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    References listed on IDEAS

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    2. Hammoudeh, Shawkat & Malik, Farooq & McAleer, Michael, 2011. "Risk management of precious metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 435-441.
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    More about this item

    Keywords

    skewed t distribution; goodness of fit; risk management; precious metal;

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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