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Risk Management of Precious Metals

Author

Listed:
  • Shawkat Hammoudeh

    (LeBow College of Business, Drexel University)

  • Farooq Malik

    (College of Business, University of Southern Mississippi)

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)

Abstract

This paper examines volatility and correlation dynamics in price returns of gold, silver, platinum and palladium, and explores the corresponding risk management implications for market risk and hedging. Value-at-Risk (VaR) is used to analyze the downside market risk associated with investments in precious metals, and to design optimal risk management strategies. We compute the VaR for major precious metals using the calibrated RiskMetrics, different GARCH models, and the semi-parametric Filtered Historical Simulation approach. The best approach for estimating VaR based on conditional and unconditional statistical tests is documented. The economic importance of the results is highlighted by assessing the daily capital charges from the estimated VaRs.

Suggested Citation

  • Shawkat Hammoudeh & Farooq Malik & Michael McAleer, 2011. "Risk Management of Precious Metals," KIER Working Papers 765, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:765
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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