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Time‐varying dynamics of expected shortfall in commodity futures markets

Julia S. Mehlitz and Benjamin R. Auer

Journal of Futures Markets, 2021, vol. 41, issue 6, 895-925

Abstract: Motivated by the growing interest of investors in commodities and by advances in risk measurement, we present a full‐scale analysis of expected shortfall (ES) in commodity futures markets. Besides illustrating the dynamics of historic ES, we evaluate whether popular estimators are suitable for forecasting future ES. By implementing a new backtest, we find that the performance of estimators hinges on market stability. Estimators tend to fail when markets are in turmoil and accurate forecasts are urgently needed. Even though a kernel method performs best on average, our results advise against the use of established estimators for risk (and margin) prediction.

Date: 2021
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