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Fat Tails, Value at Risk, and the Palladium Returns

Jianhua Ding, Turen Guo and Bin Guo
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Jianhua Ding: Jianghan University, China
Turen Guo: Xiangnan College, China
Bin Guo: University of Cologne, Germany

Journal of Applied Management and Investments, 2018, vol. 7, issue 2, 95-103

Abstract: The past decade has witnessed the rapid growing of the world palladium market. Thus, it is even more important to develop effective quantitative tools for risk management of palladium assets at this moment. In this paper, the authors investigated five different types of widely-used statistical distributions and employ the industry standard risk measurement, value at risk (VaR), for risk management of daily palladium spot returns. First the four different criteria were applied to compare the goodness of fit of the five distributions, and then calculate the VaRs based on the parameters estimated from the first step. The results indicate the skewed t distribution has the best in-sample fitting and generate VaR values closest to the nonparametric historical VaR values.

Keywords: skewed t distribution; goodness of fit; risk management; precious metal (search for similar items in EconPapers)
JEL-codes: C46 C58 G10 G11 (search for similar items in EconPapers)
Date: 2018
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