Extreme Value Theory and Value at Risk : Application to Oil Market

By Velayoudoum Marimoutou, Bechir Raggad, Abdelwahed Trabelsi. 2009

230 citations recorded by the source corpus.

Recent increases in energy prices, especially oil prices, have become a principal concern for consumers, corporations, and governments. Most analysts believe that oil price fluctuations have considerable consequences on economic activity. Oil markets have become relatively free, resulting in a high degree of oil-price volatility and generating radical changes to world energy and oil industries. As a result oil markets are naturally vulnerable to significant negative volatility. An example of such a case is the oil embargo crisis of 1973. In this newly created climate, protection against market risk has become a necessity. Value at Risk (VaR) measures risk exposure at a given probability level and is very important for risk management. Appealing aspects of Extreme Value Theory (EVT) have made convincing arguments for its use in managing energy price risks. In this paper, we apply both unconditional and conditional EVT models to forecast Value at Risk. These models are compared to the performances of other well-known modelling techniques, such as GARCH, historical simulation and Filtered Historical Simulation. Both conditional EVT and Filtered Historical Simulation procedures offer a major improvement over the parametric methods. Furthermore, GARCH(1, 1)-t model may provide equally good results, as well as the combining of the two procedures.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/a216c32c67ec651aa3c2075e63e5e90b5d26fbfe

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In Economics and Econometrics

1. Pilar Abad
2. Carmen López
3. Sonia Benito
4. Marco Rocco
5. M. Nieto
6. Esther Ruiz

In Finance

1. Pilar Abad
2. Carmen López
3. Sonia Benito
4. Marco Rocco
5. M. Nieto
6. Esther Ruiz

Citations in the corpus

• A comprehensive review of Value at Risk methodologies (2014, methodology): “As for other methods, Zikovic and Aktan (2009), Angelidis et al. (2007), Kuester et al. (2006) and Marimoutou et al. (2009) provide evidence that this method is the best for estimating the VaR.”
• Extreme Value Theory for Finance: A Survey (2012, background): “70The calculation of VaR for both long and short positions has been performed later on also by Ané (2006), Byström (2007), Marimoutou et al. (2009) and Ho et al. (2000), among others.”