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Risk Analysis for Three Precious Metals: An Application of Extreme Value Theory

Qinlu Chen & David E. Giles ()
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Qinlu Chen & David E. Giles: Department of Economics, University of Victoria, http://web.uvic.ca/~dgiles/

Authors registered in the RePEc Author Service: David Giles ()

No 1704, Econometrics Working Papers from Department of Economics, University of Victoria

Abstract: Gold, and other precious metals, are among the oldest and most widely held commodities used as a hedge against the risk of disruptions in financial markets. The prices of such metals fluctuate substantially, introducing risks of their own. This paper’s goal is to analyze the risk of investment in gold, silver, and platinum by applying Extreme Value Theory to historical daily data for changes in their prices. The risk measures adopted in this paper are Value at Risk and Expected Shortfall. Estimates of these measures are obtained by fitting the Generalized Pareto Distribution, using the Peaks-Over-Threshold method, to the extreme daily price changes. The robustness of the results to changes in the sample period, threshold choice, and distributional assumptions, are discussed. Our results show that silver is the most risky metal among the three considered. For negative daily returns, platinum is riskier than gold; while the converse is true for positive returns.

Keywords: Precious metals; extreme values; portfolio risk; value-at-risk; generalized Pareto distribution (search for similar items in EconPapers)
JEL-codes: C46 C58 G10 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2017-08-10
Note: ISSN 1485-6441
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Working Paper: Risk Analysis for Three Precious Metals: An Application of Extreme Value Theory (2014) Downloads
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