WTI Crude Oil Option-Implied VaR and CVaR: An Empirical Application

Journal of Forecasting, Volume 38, Issue 6, Pages 552-563, Forthcoming

Swiss Finance Institute Research Paper No. 16-53

25 Pages Posted: 24 Feb 2016 Last revised: 13 Aug 2019

See all articles by Giovanni Barone-Adesi

Giovanni Barone-Adesi

University of Lugano; Swiss Finance Institute

Marinela Adriana Finta

Singapore Management University

Chiara Legnazzi

Swiss Finance Institute

Carlo Sala

ESADE Business School

Date Written: December 1, 2016

Abstract

Using option market data we derive naturally forward-looking, nonparametric and model-free risk estimates, three desired characteristics hardly obtainable using historical returns. The option-implied measures are only based on the first derivative of the option price with respect to the strike price, bypassing the difficult task of estimating the tail of the return distribution. We estimate and backtest the 1%, 2.5%, and 5% WTI crude oil futures option-implied value at risk and conditional value at risk for the turbulent years 2011–2016 and for both tails of the distribution. Compared with risk estimations based on the filtered historical simulation methodology, our results show that the option-implied risk metrics are valid alternatives to the statistically based historical models.

Keywords: Option Prices, Risk Measures, VaR and CVaR, Elicitability

JEL Classification: G13, G17

Suggested Citation

Barone-Adesi, Giovanni and Finta, Marinela Adriana and Legnazzi, Chiara and Sala, Carlo, WTI Crude Oil Option-Implied VaR and CVaR: An Empirical Application (December 1, 2016). Journal of Forecasting, Volume 38, Issue 6, Pages 552-563, Forthcoming , Swiss Finance Institute Research Paper No. 16-53, Available at SSRN: https://ssrn.com/abstract=2737368 or http://dx.doi.org/10.2139/ssrn.2737368

Giovanni Barone-Adesi

University of Lugano ( email )

Via Buffi 13
CH-6904 Lugano
Switzerland
+41 58 666 4671 (Phone)
+41 58 666 46 47 (Fax)

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Marinela Adriana Finta

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Chiara Legnazzi

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Carlo Sala (Contact Author)

ESADE Business School ( email )

Avenida de Torreblanca 59
Barcelona, Barcelona 08172
Spain

HOME PAGE: http://www.people.usi.ch/salaca

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