Stable modeling in energy risk management |
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Authors: | Irina Khindanova Zauresh Atakhanova |
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Institution: | (1) Colorado School of Mines, Division of Economics and Business, 1500 Illinois Street, Golden, CO 80401, USA (e-mail: ikhindan@mines.edu), US |
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Abstract: | High price volatility in energy markets compels the companies to adopt and implement policies for measurement and management
of the energy risk. A popular measure of risk exposure is the Value at Risk (VaR). Traditional methods of estimation of VaR
used by major energy companies fail to capture the heavy tails and asymmetry of energy returns distributions. We suggest the
use of stable distributions for modeling energy return distributions. The results of our study demonstrate that stable modeling
captures asymmetry and heavy-tails of returns, and, therefore, provides more accurate estimates of energy VaR. |
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Keywords: | : Energy risk management Value at Risk Modeling Stable distributions |
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