Using Value-at-Risk for effective energy portfolio risk management

George Halkos and Apostolos Tsirivis

MPRA Paper from University Library of Munich, Germany

Abstract: It is evident that the prediction of future variance through advanced GARCH type models is essential for an effective energy portfolio risk management. Still it fails to provide a clear view on the specific amount of capital that is at risk on behalf of the investor or any party directly affected by the price fluctuations of specific or multiple energy commodities. Thus, it is necessary for risk managers to make one further step, determining the most robust and effective approach that will enable them to precisely monitor and accurately estimate the portfolio’s Value-at-Risk, which by definition provides a good measure of the total actual amount at stake. Nevertheless, despite the variety of the variance models that have been developed and the relative VaR methodologies, the vast majority of the researchers conclude that there is no model or specific methodology that outperforms all the others. On the contrary, the best approach to minimize risk and accurately forecast the future potential losses is to adopt that specific methodology that will be able to take into consideration the particular characteristic features regarding the trade of energy products.

Keywords: Energy commodities; Risk Management; Value-at-Risk (VaR). (search for similar items in EconPapers)
JEL-codes: C01 C58 D81 G30 O13 P28 Q43 Q47 Q5 Q58 (search for similar items in EconPapers)
Date: 2019-01-23
New Economics Papers: this item is included in nep-ene and nep-rmg
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