Dynamic Stochastic Factors, Risk Management and the Energy Futures

Zi-Yi Guo and Yangxiaoteng Luo

International Business Research, 2017, vol. 10, issue 9, 50-59

Abstract: The world crude oil prices have dropped dramatically, and consequently the oil market has become very volatile and risky in the last several years. Since energy markets play very important roles in the international economy and have led several global economic crises, risk management of energy products prices becomes very important for both academicians and market participants. Schwartz and Smith’s model (2000) is applied to calculate risk measures of Brent oil futures contracts and light sweet crude oil (WTI) futures contracts. The model includes a long-term factor and a short-term factor. We show that the two factors explain the Samuelson effect well and the model present well goodness of fit. Our back testing results demonstrate that the models provide satisfactory risk measures for listed crude oil futures contracts.

Keywords: factor model; value-at-risk; exceedances (search for similar items in EconPapers)
JEL-codes: C58 G13 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ibrjnl:v:10:y:2017:i:9:p:50-59

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