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Hedging gas in a multi-frequency semiparametric CVaR portfolio

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  • Živkov, Dejan
  • Balaban, Suzana
  • Simić, Milica

Abstract

The price of natural gas has experienced a huge increase in recent years due to the pandemic and the war in Ukraine, which has created a high risk for agents working with gas. This paper tries to reduce extreme risk of gas in multi-scale six-asset portfolios, combining gas with developed and BRICS stock indices. Wavelet transformed time-series are used to create the portfolios in the midterm and long-term horizons. Extreme downside risk of portfolios is measured by parametric CVaR and more complex semi-parametric CVaR. The results indicate that semiparametric CVaR is capable of recognizing leptokurtic and platykurtic features in multiscale distributions, making it superior to parametric CVaR. Both groups of indices significantly reduce extreme risk of gas, but the portfolios with BRICS indices have slight upper hand, probably due to lower integration of BRICS markets. To make the analysis more detailed, several other concepts are also examined in the paper.

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  • Živkov, Dejan & Balaban, Suzana & Simić, Milica, 2024. "Hedging gas in a multi-frequency semiparametric CVaR portfolio," Research in International Business and Finance, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pa:s0275531923002751
    DOI: 10.1016/j.ribaf.2023.102149
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    More about this item

    Keywords

    Energy portfolio optimization; Wavelet; Parametric and semiparametric downside risk;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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