WTI Crude Oil Option-Implied VaR and CVaR: An Empirical Application

Giovanni Barone-Adesi, Chiara Legnazzi and Carlo Sala
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Giovanni Barone-Adesi: Swiss Finance Institute
Chiara Legnazzi: Swiss Finance Institute
Carlo Sala: ESADE Business School

No 16-53, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The forward-looking structure of option market prices provides a natural model-free way to extract different risk measures. We extract the 2014-2015 daily option implied VaR and CVaR from the WTI crude oil future prices and the options written on it. Without relying neither on numerical simulations nor on distributional assumptions, we propose a forward-looking risk measure that is both coherent and backtestable. Working naturally at longer-than-usual time horizons, the risk that the risk could change is no longer an issue. From a forecasting viewpoint, the ratio of the two risk measures allows to predict the probability density of jumps in the underlying price, which would have been otherwise unpredictable a priori with standard inference models.

Keywords: Option Prices; Risk Measures; VaR and CVaR; Elicitability (search for similar items in EconPapers)
JEL-codes: G13 G17 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2016-12
New Economics Papers: this item is included in nep-ene and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1653

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