Estimating Risk of Natural Gas Portfolios by Using GARCH-EVT-Copula Model.
This paper concentrates on estimating the risk of Title Transfer Facility (TTF) Hub natural gas portfolios by using the GARCH-EVT-copula model. We first use the univariate ARMA-GARCH model to model each natural gas return series. Second, the extreme value distribution (EVT) is fitted to the tails of the residuals to model marginal residual distributions. Third, multivariate Gaussian copula and Student t-copula are employed to describe the natural gas portfolio risk dependence structure. Finally, we simulate N portfolios and estimate value at risk (VaR) and conditional value at risk (CVaR). Our empirical results show that, for an equally weighted portfolio of five natural gases, the VaR and CVaR values obtained from the Student t-copula are larger than those obtained from the Gaussian copula. Moreover, when minimizing the portfolio risk, the optimal natural gas portfolio weights are found to be similar across the multivariate Gaussian copula and Student t-copula and different confidence levels.
Faculty of Economics, Chiang Mai University, 2397 Suthep, A. Mueang, Chiang Mai 200060, Thailand.
Jiechen
J
Tang
School of Economics, Northwest Normal University, Lanzhou, China ; The People's Bank of China, Zhang Ye City Branch, Zhangye, China.
Chao
C
Zhou
Faculty of Economics and Management, Yunnan Normal University, Yunnan, China.
Xinyu
X
Yuan
Faculty of Economics, Chiang Mai University, 2397 Suthep, A. Mueang, Chiang Mai 200060, Thailand.
Songsak
S
Sriboonchitta