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WTI Crude Oil Option-Implied VaR and CVaR: An Empirical Application

Author

Listed:
  • Giovanni Barone-Adesi

    (Swiss Finance Institute)

  • Chiara Legnazzi

    (Swiss Finance Institute)

  • Carlo Sala

    (ESADE Business School)

Abstract

The forward-looking structure of option market prices provides a natural model-free way to extract different risk measures. We extract the 2014-2015 daily option implied VaR and CVaR from the WTI crude oil future prices and the options written on it. Without relying neither on numerical simulations nor on distributional assumptions, we propose a forward-looking risk measure that is both coherent and backtestable. Working naturally at longer-than-usual time horizons, the risk that the risk could change is no longer an issue. From a forecasting viewpoint, the ratio of the two risk measures allows to predict the probability density of jumps in the underlying price, which would have been otherwise unpredictable a priori with standard inference models.

Suggested Citation

  • Giovanni Barone-Adesi & Chiara Legnazzi & Carlo Sala, 2016. "WTI Crude Oil Option-Implied VaR and CVaR: An Empirical Application," Swiss Finance Institute Research Paper Series 16-53, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1653
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    More about this item

    Keywords

    Option Prices; Risk Measures; VaR and CVaR; Elicitability;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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