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Stochastic multifactor models in risk management of energy futures

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  • Zi‐Yi Guo

Abstract

We adopt Schwartz and Smith's model to calculate risk measures of Brent oil and light sweet crude oil (WTI) futures contracts and Mirantes, Poblacion, and Serna's model to calculate risk measures of natural gas, gasoil, heating oil, RBOB gasoline, PJM Western Hub peak, and off‐peak electricity futures contracts. The models generate well in‐sample goodness of fit and satisfactory out‐of‐sample Value‐at‐Risk and expected shortfall forecasts for all the eight of the analyzed commodities. A simple and flexible estimation method improving upon existing estimation methods is developed.

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  • Zi‐Yi Guo, 2020. "Stochastic multifactor models in risk management of energy futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(12), pages 1918-1934, December.
  • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:12:p:1918-1934
    DOI: 10.1002/fut.22154
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    1. Deqin Lin & Wenyang Deng & Siting Dai, 2022. "A Margin Design Method Based on the SPAN in Electricity Futures Market Considering the Risk of Power Factor," Energies, MDPI, vol. 15(14), pages 1-14, July.
    2. Guo, Zi-Yi, 2021. "Price volatilities of bitcoin futures," Finance Research Letters, Elsevier, vol. 43(C).
    3. Ning Zhang & Yujing Gong & Xiaohan Xue, 2023. "Less disagreement, better forecasts: Adjusted risk measures in the energy futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(10), pages 1332-1372, October.
    4. Han Jun S. & Kordzakhia Nino & Shevchenko Pavel V. & Trück Stefan, 2022. "On correlated measurement errors in the Schwartz–Smith two-factor model," Dependence Modeling, De Gruyter, vol. 10(1), pages 108-122, January.

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