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A wavelet-based copula approach for modeling market risk in agricultural commodity markets

Author

Listed:
  • RIADH ALOUI

    () (LAREQUAD & FSEGT, University of Tunis El Manar, B.P 248 El Manar II 2092 Tunis, Tunisia)

  • MOHAMED SAFOUANE BEN AISSA

    ()

  • DUC KHUONG NGUYEN

    () (Dept. of Finance and Information Systems, ISC Paris School of Management, 22, Boulevard du Fort de Vaux, 75017 Paris, France)

Abstract

We consider the problem of accurate market risk modeling for agricultural commodity products over heterogeneous investment horizons using copulas and wavelet methods. Our results indicate that the degree and structure of the dependence of daily commodity returns on the three market risk fac- tors (federal funds rate, USD/Euro exchange rate, and world stock market ?uctuations) vary according to the time scale. Changes in the USD/EUR exchange rate and the stock market index are the dominant risks for agri- cultural commodity markets. Moreover, the tail dependence on the daily re- turns of the three market risk factors is also scale-dependent, and frequently asymmetric. Finally, there is evidence to suggest that the application of the wavelet-copula model improves the accuracy of VaR estimates, compared to traditional approaches.

Suggested Citation

  • Riadh Aloui & Mohamed Safouane Ben Aissa & Duc Khuong Nguyen, 2013. "A wavelet-based copula approach for modeling market risk in agricultural commodity markets," Working Papers 04, Development and Policies Research Center (DEPOCEN), Vietnam.
  • Handle: RePEc:dpc:wpaper:0413
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    File URL: http://depocenwp.org/modules/download/index.php?id=154
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    5. repec:ipg:wpaper:2014-561 is not listed on IDEAS
    6. repec:ipg:wpaper:2014-454 is not listed on IDEAS
    7. repec:ipg:wpaper:2014-480 is not listed on IDEAS
    8. Aloui, Chaker & Jammazi, Rania, 2015. "Dependence and risk assessment for oil prices and exchange rate portfolios: A wavelet based approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 436(C), pages 62-86.
    9. repec:ipg:wpaper:2014-495 is not listed on IDEAS
    10. repec:ipg:wpaper:2014-481 is not listed on IDEAS
    11. repec:ipg:wpaper:2014-478 is not listed on IDEAS
    12. repec:ipg:wpaper:2014-470 is not listed on IDEAS

    More about this item

    Keywords

    Agricultural commodities; Extreme-value copula; Wavelet; VaR; CVaR;

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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