EconPapers    
Economics at your fingertips  
 

Downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks

Shawkat Hammoudeh, Paulo Araújo Santos and Al-Hassan, Abdullah

The North American Journal of Economics and Finance, 2013, vol. 25, issue C, 318-334

Abstract: Value-at-Risk (VaR) is used to analyze the market downside risk associated with investments in six key individual assets including four precious metals, oil and the S&P 500 index, and three diversified portfolios. Using combinations of these assets, three optimal portfolios and their efficient frontiers within a VaR framework are constructed and the returns and downside risks for these portfolios are also analyzed. One-day-ahead VaR forecasts are computed with nine risk models including calibrated RiskMetrics, asymmetric GARCH type models, the filtered Historical Simulation approach, methodologies from statistics of extremes and a risk management strategy involving combinations of models. These risk models are evaluated and compared based on the unconditional coverage, independence and conditional coverage criteria. The economic importance of the results is also highlighted by assessing the daily capital charges under the Basel Accord rule. The best approaches for estimating the VaR for the individual assets under study and for the three VaR-based optimal portfolios and efficient frontiers are discussed. The VaR-based performance measure ranks the most diversified optimal portfolio (Portfolio #2) as the most efficient and the pure precious metals (Portfolio #1) as the least efficient.

Keywords: Key assets; Value-at-Risk; Optimal portfolios; Efficient frontiers; Risk management (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940812000630
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:25:y:2013:i:c:p:318-334

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-04-08
Handle: RePEc:eee:ecofin:v:25:y:2013:i:c:p:318-334