Economics at your fingertips  

Modeling extreme risks in commodities and commodity currencies

Fernanda Fuentes, Rodrigo Herrera () and Adam Clements

Pacific-Basin Finance Journal, 2018, vol. 51, issue C, 108-120

Abstract: This paper examines extreme co-movements between the Australian and Canadian currencies, often known as commodity currencies, and gold and oil markets respectively. Here, two main approaches based on extreme value theory are compared in the context of explaining the co-movements between the markets in times of market instability. On the one hand, the intensity of the extreme events is represented by self-exciting marked point processes using a multivariate extension of the Hawkes-POT model, while contemporaneous co-movements are characterized utilizing a more traditional multivariate volatility model, the DBEKK-EVT model. It is found that intensity and volatility follow similar paths through time. The Hawkes-POT model reveals the unidirectional influence of the commodity on the currency, consistent with previous literature. Hawkes-POT model produces slightly more accurate Value at Risk results in the in-sample period, while the results are mixed in the backtesting period. Overall it seems as though the simpler multivariate volatility based approach produce forecasts of extreme risk that are comparable to the more complex Hawkes model.

Keywords: Commodity currency; BEKK; Hawkes model; Value at risk (search for similar items in EconPapers)
JEL-codes: C11 C58 C22 F30 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Modelling Extreme Risks in Commodities and Commodity Currencies (2016) Downloads
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:

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-10-01
Handle: RePEc:eee:pacfin:v:51:y:2018:i:c:p:108-120