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Evaluating the performance of VaR models in energy markets

Author

Listed:
  • Sasa Zikovic
  • Rafal Weron
  • Ivana Tomas Zikovic

Abstract

In this paper we analyze the relative performance of 13 VaR models using daily returns of WTI, Brent, natural gas and heating oil one-month futures contracts. After obtaining VaR estimates we evaluate the statistical significance of the differences in performance of the analyzed VaR models. We employ the simulation-based methodology proposed by Zikovic and Filer (2013), which allows us to rank competing VaR models. Somewhat surprisingly, the obtained results indicate that for a large number of different VaR models there is no statistical difference in their performance, as measured by the Lopez size adjusted score. However, filtered historical simulation (FHS) and the semiparametric BRW model stand out as robust and consistent approaches that – in most cases – significantly outperform the remaining VaR models.

Suggested Citation

  • Sasa Zikovic & Rafal Weron & Ivana Tomas Zikovic, 2014. "Evaluating the performance of VaR models in energy markets," HSC Research Reports HSC/14/12, Hugo Steinhaus Center, Wroclaw University of Technology.
    • Handle: RePEc:wuu:wpaper:hsc1412
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Energy markets; Risk management; Value at Risk; Multicriteria classification;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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