 Revisiting value-at-risk and expected shortfall in oil markets under structural breaks: The role of fat-tailed distributionsSaswat Patra Energy Economics, 2021, vol. 101, issue C Abstract: Modeling the volatility of oil prices is extremely crucial from a risk management perspective. Value-at-risk (VaR) and Expected Shortfall (ES), the two most popular measures of risk in financial markets, are dependent on the volatility of the oil prices. In this study, Pearson Type-IV and Johnsons Su distributions are explored as two alternate distributions with characteristics, such as asymmetry and heavy tail, to model the volatility and forecast VaR/ES. The estimation is carried out under endogenously determined structural breaks from the data. Various Backtesting methodologies are employed to test the efficacy of the forecasts. The empirical results obtained show that the models with Pearson's Type-IV and Johnson's Su distributions outperform other fat-tailed distributions and the normal distribution especially at the 1% (for long positions) and 99% (for short positions) level. This has policy implications for the oil producing companies, market participants, regulators in the energy sector and the government in general. Keywords: Volatility; Value-at-risk; Expected shortfall; Pearson type IV; Johnson Su distribution; Crude oil market (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:101:y:2021:i:c:s0140988321003406 DOI: 10.1016/j.eneco.2021.105452 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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