Risk Management in Oil Market: A Comparison between Multivariate GARCH Models and Copula-based Models

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JABALAMELI FARKHONDEH; Ghorbani Pourya; AHMADIAN MAJID

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Journal: IRANIAN ECONOMIC REVIEW Year:2020 | Volume:24 | Issue:2 Page(s): 489-513

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Title

Risk Management in Oil Market: A Comparison between Multivariate GARCH Models and Copula-based Models

Author(s)

JABALAMELI FARKHONDEH | Ghorbani Pourya | AHMADIAN MAJID | Issue Writer Certificate

Keywords

Asymmetric Dependence

Optimal Hedge Ratio

Copula-based Models

OPEC Oil

Abstract

H igh price volatility and the risk are the main features of commodity markets. One way to reduce this risk is to apply the hedging policy by future contracts. In this regard, in this paper, we will calculate the optimal hedging ratios for OPEC Oil. In this study, besides the multivariate GARCH models, for the first time we use conditional copula models for modelling dependence structure between OPEC Oil and WTI future contract with different maturities and estimating hedging ratio for OPEC Oil by using WTI future contracts. The results of this study show that dependence structure between OPEC Oil and WTI future contract in three maturities is asymmetric. In addition, results indicate that during the studied period (2003-2017), Copula-based Models have more efficiency in applying the hedging policy than multivariate GARCH models. With an increase in the maturity of contracts, the average Optimal Hedge Ratio increases. On the other hand, the highest performance of hedging strategies achieved by using WTI futures contract with six months maturity...

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APA: Copy

JABALAMELI, FARKHONDEH, Ghorbani, Pourya, & AHMADIAN, MAJID. (2020). Risk Management in Oil Market: A Comparison between Multivariate GARCH Models and Copula-based Models. IRANIAN ECONOMIC REVIEW, 24(2), 489-513. SID. https://sid.ir/paper/772257/en

Vancouver: Copy

JABALAMELI FARKHONDEH, Ghorbani Pourya, AHMADIAN MAJID. Risk Management in Oil Market: A Comparison between Multivariate GARCH Models and Copula-based Models. IRANIAN ECONOMIC REVIEW[Internet]. 2020;24(2):489-513. Available from: https://sid.ir/paper/772257/en

IEEE: Copy

FARKHONDEH JABALAMELI, Pourya Ghorbani, and MAJID AHMADIAN, “Risk Management in Oil Market: A Comparison between Multivariate GARCH Models and Copula-based Models,” IRANIAN ECONOMIC REVIEW, vol. 24, no. 2, pp. 489–513, 2020, [Online]. Available: https://sid.ir/paper/772257/en

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