Price Risk Analysis using GARCH Family Models: Evidence from Shanghai Crude Oil Futures Market

Shuhua Bei, Aijun Yang, Haotian Pei and Xiaoli Si

Economic Modelling, 2023, vol. 125, issue C

Abstract: In recent years, influenced by political and economic events, the price of the Shanghai crude oil futures market has changed significantly. It is therefore of great academic and practical importance to accurately measure the price risk of the Shanghai crude oil futures market. This paper uses a variety of GARCH models to predict price risk and uses the Model Confidence Set approach to evaluate forecasting performance. The daily closing prices of the Shanghai crude oil futures market from March 2018 to February 2021 are used. The empirical results show that futures price responds more strongly to negative news shocks than to positive news shocks, and the EGARCH model can effectively improve the accuracy of price risk measurement. An accurate assessment of the price risk can help investors to arrange funds in advance or to rebalance trading positions in order to meet the margin requirements.

Keywords: Price risk management; Shanghai crude oil futures market; GARCH family Models; VaR prediction; MCS approach (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:125:y:2023:i:c:s0264999323001797

DOI: 10.1016/j.econmod.2023.106367

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