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Market risk in commodity markets: a VaR approach

  • GIOT, Pierre
  • LAURENT, Sébastien

We put forward Value-at-Risk models relevant for commodity traders who have long and short trading positions in commodity markets. In a five-year out-of-sample study on aluminium, copper, nickel, Brent crude oil and WTI crude oil daily cash prices and cocoa nearby futures contracts, we assess the performance of the RiskMetrics, skewed Student APARCH and skewed student ARCH models. While the skewed Student APARCH model performs best in all cases, the skewed Student ARCH model delivers good results and its estimation does not require non-linear optimization procedures. As such this new model could be relatively easily integrated in a spreadsheet-like environment and used by market practitioners.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003028.

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Date of creation: 00 Apr 2003
Date of revision:
Handle: RePEc:cor:louvco:2003028
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