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

Halkos, George and Tsirivis, Apostolos (2019): Using Value-at-Risk for effective energy portfolio risk management.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy commodities, Risk Management, Value-at-Risk (VaR).
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P28 - Natural Resources ; Energy ; Environment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q47 - Energy Forecasting; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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