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Hedging Extreme Risk of Wheat in Semiparametric CVaR Portfolios with Commodities

Author

Listed:
  • Dejan Zivkov

    (Novi Sad school of business, University of Novi Sad, Serbia)

  • Sanja Loncar

    (Novi Sad school of business, University of Novi Sad, Serbia)

  • Biljana Stankov

    (Novi Sad school of business, University of Novi Sad, Serbia)

Abstract

This paper investigates how to minimize the downside risk of wheat by making three five-asset portfolios with different types of commodities – precious metals, industrial metals and energy. The portfolio optimization process uses the complex semiparametric CVaR metric as targeted. For comparison purposes, portfolios with the classical parametric CVaR are also constructed. Considering the different attitudes of investors towards risk, all portfolios are constructed assuming two different levels of risk aversion. The preliminary equicorrelation findings reveal that energy commodities have the lowest integration with the wheat market, which is suitable for diversification efforts. The constructed portfolios indicate that the precious metals portfolio has the lowest CVaR and mCVaR risk, taking into account both probability levels. Gold dominates this portfolio due to the lowest second, third and fourth moments. Industrial metals also have good hedging capabilities, while energy commodities perform the worst.

Suggested Citation

  • Dejan Zivkov & Sanja Loncar & Biljana Stankov, 2024. "Hedging Extreme Risk of Wheat in Semiparametric CVaR Portfolios with Commodities," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 74(3), pages 342-365, August.
    • Handle: RePEc:fau:fauart:v:74:y:2024:i:3:p:342-365
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1538
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    More about this item

    Keywords

    semiparametric CVaR portfolio optimization; downside risks; DECO-GARCH model;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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