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Risk Modeling of Commodities using CAViaR Models, the Encompassing Method and the Combined Forecasts

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  • Ewa Ratuszny

    (Warsaw School of Economics)

Abstract

The aim of the research is to compare VaR methods/models for commodities. For risk measurement Conditional Autoregressive Value at Risk models (CAViaR), implied quantile model and encompassing method are used. The aim is to check whether simultaneous use of information both from historical time series and regarding markets\' expectation can improve accuracy of forecasts. For this purpose four methods of combining forecasts are used: a simple average combining, an unrestricted linear combination, a weighted averaged combining and a weighted averaged combining using exponential weighting. In the case of the commodities neither the encompassing method nor the combining forecast method improve VaR forecasts. The method of choosing the most adequate model leads to simple CAViaR-SAV model as the source of most optimal measure of risk forecasts. The Kupiec test, the Christoffersen and the Dynamic Quantile test indicate the model as an adequate to forecast VaR for gold and oil for short positions at the 0.01 and the 0.05 significance level, and for a long position at the 0.05 significance level.

Suggested Citation

  • Ewa Ratuszny, 2015. "Risk Modeling of Commodities using CAViaR Models, the Encompassing Method and the Combined Forecasts," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 15, pages 129-156.
    • Handle: RePEc:cpn:umkdem:v:15:y:2015:p:129-156
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    Cited by:

    1. Peng, Wei, 2023. "The impact of oil and natural gas prices on overnight risk in exchange rates based on the MVMQ-CAViaR models," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 616-625.

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    More about this item

    Keywords

    CAViaR; VaR; encompassing method; combined forecasts; commodities;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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