Stochastic multifactor models in risk management of energy futures

Zi‐Yi Guo

Journal of Futures Markets, 2020, vol. 40, issue 12, 1918-1934

Abstract: We adopt Schwartz and Smith's model to calculate risk measures of Brent oil and light sweet crude oil (WTI) futures contracts and Mirantes, Poblacion, and Serna's model to calculate risk measures of natural gas, gasoil, heating oil, RBOB gasoline, PJM Western Hub peak, and off‐peak electricity futures contracts. The models generate well in‐sample goodness of fit and satisfactory out‐of‐sample Value‐at‐Risk and expected shortfall forecasts for all the eight of the analyzed commodities. A simple and flexible estimation method improving upon existing estimation methods is developed.

Date: 2020
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