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Estimating Value-at-Risk and expected shortfall of metal commodities: Application of GARCH-EVT method
Journal of Risk Management in Financial Institutions,
16
(2),
189-199
(2023)
Abstract
The metal markets have become extremely competitive and highly volatile due to financial globalisation. Therefore, in this study, the Value-at-Risk (VaR) and expected shortfall (ES) are estimated for the metal markets. A two-stage dynamic extreme value theory (EVT) method has been adopted along with the GARCH (1, 1) model to identify the pre-specified threshold for the metal market by using high-frequency returns data of 15-minute intervals ranging from 1st January, 2018 to 24th September, 2021, which provides accurate information about metal market volatility and tail distribution. Moreover, the empirical findings confirm the presence of a high level of volatility persistence in the metal market, especially in the financial returns of gold. Furthermore, silver metal returns exhibit the highest VaR compared to other metals in the market. The empirical results could assist financial investors and portfolio managers to minimise and control the potential risk in the market.
Keywords: Value-at-Risk; extreme value theory; GARCH; metal market
The full article is available to subscribers to the journal.
Author's Biography
Maaz Khan has completed his Master's in Finance from COMSATS University Islamabad. His research interests include financial modelling, economic analysis and machine learning.
Mrestyal Khan is a lecturer in the Department of Management Sciences at Balochistan University of Information Technology, Engineering and Management Sciences (BUITEMS), Quetta. He earned his Master's degree with specialisation in Finance from COMSATS University Islamabad, Pakistan in 2021. His research focuses on stock markets, dependence structure, network connectedness, financial risk management and financial econometrics. His recent publications include ‘Dependence structure across equity sectors: Evidence from vine copulas' in Borsa Istanbul Review
Muhammad Irfan completed his Doctorate from Universiti Putra Malaysia, in 2018. Currently, he is rendering his services as Associate Professor and Deputy Dean at the Faculty of Management Sciences, BUITEMS. His research interests include project management and financial econometrics.
Citation
Khan, Maaz, Khan, Mrestyal and Irfan, Muhammad (2023, August 1). Estimating Value-at-Risk and expected shortfall of metal commodities: Application of GARCH-EVT method. In the Journal of Risk Management in Financial Institutions, Volume 16, Issue 2. https://doi.org/10.69554/EJLU3289.
© Henry Stewart
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