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A wavelet-based copula approach for modeling market risk in agricultural commodity markets

Riadh Aloui, Mohamed Ben Aissa () and Duc Khuong Nguyen

No 4, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: We consider the problem of accurate market risk modeling for agricultural commodity products over heterogeneous investment horizons using copulas and wavelet methods. Our results indicate that the degree and structure of the dependence of daily commodity returns on the three market risk fac- tors (federal funds rate, USD/Euro exchange rate, and world stock market ?uctuations) vary according to the time scale. Changes in the USD/EUR exchange rate and the stock market index are the dominant risks for agri- cultural commodity markets. Moreover, the tail dependence on the daily re- turns of the three market risk factors is also scale-dependent, and frequently asymmetric. Finally, there is evidence to suggest that the application of the wavelet-copula model improves the accuracy of VaR estimates, compared to traditional approaches.

Keywords: Agricultural commodities; Extreme-value copula; Wavelet; VaR; CVaR (search for similar items in EconPapers)
JEL-codes: C52 C58 G11 G17 Q14 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013
New Economics Papers: this item is included in nep-agr and nep-rmg
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Citations: View citations in EconPapers (12)

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