Robust Estimation of Conditional Risk Measures for Crude Oil and Natural Gas Futures Prices in the Presence of Outliers

41 Pages Posted: 14 Feb 2018 Last revised: 9 Mar 2019

See all articles by Joe Wayne Byers

Joe Wayne Byers

Oklahoma State University Spears School of Business Department of Finance

Ivilina Popova

Texas State University - San Marcos

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance

Date Written: March 4, 2019

Abstract

In this study, we aim to build better risk models for energy commodities by employing statistical procedures to identify outliers in the prices for all crude oil and natural gas futures contracts traded on the CME over the period of December 2003 through March 2017. Our results show that it is important to investigate and control for potential outlier effects when performing parametric estimation of risk parameters because outliers can have a large impact on the estimation of value at risk. We illustrate for actual crude oil and natural gas contract how the use of value at risk metrics based on raw data can lead to higher than expected actual losses. Our research demonstrates that it is crucial to include intervention parameters to address outlier impacts in order to obtain robust risk metrics.

Keywords: Value at Risk, Conditional Value at Risk, Outlier Detection, Risk Capital

JEL Classification: C4, C5, C6, G1, G13

Suggested Citation

Byers, Joe W. and Popova, Ivilina and Simkins, Betty J., Robust Estimation of Conditional Risk Measures for Crude Oil and Natural Gas Futures Prices in the Presence of Outliers (March 4, 2019). Available at SSRN: https://ssrn.com/abstract=3122009 or http://dx.doi.org/10.2139/ssrn.3122009

Joe W. Byers

Oklahoma State University Spears School of Business Department of Finance ( email )

Stillwater, OK 74078-0555
United States

Ivilina Popova

Texas State University - San Marcos ( email )

601 University Drive
San Marcos, TX 78666-4616
United States

HOME PAGE: http://www.business.txstate.edu/users/ip12/

Betty J. Simkins (Contact Author)

Oklahoma State University - Stillwater - Department of Finance ( email )

336 Business Building
Stillwater, OK 74078-4011
United States
405-744-8625 (Phone)
405-744-5180 (Fax)

HOME PAGE: http://spears.okstate.edu/~simkins

Register to save articles to
your library

Register

Paper statistics

Downloads
49
Abstract Views
287
PlumX Metrics