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Keywords
(11)
Crude Oil
Empirical Study
Futures Market
Mean Reversion
Model Risk
Natural Gas
Portfolio Optimization
Principal Component Analysis
Seasonality
Skewed Distribution
Stable Distribution
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Modeling, Risk Assessment and Portfolio Optimization of Energy Futures
Modeling, Risk Assessment and Portfolio Optimization of Energy Futures,Almira Biglova,Takashi Kanamura,Svetlozar T. Rachev,Stoyan Stoyanov
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Modeling, Risk Assessment and Portfolio Optimization of Energy Futures
(
Citations: 4
)
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Almira Biglova
,
Takashi Kanamura
,
Svetlozar T. Rachev
,
Stoyan Stoyanov
This paper examines the
portfolio optimization
of energy futures by using the STARR ratio that can evaluate the risk and return relationship for skewed distributed returns. We model the price returns for energy futures by using the ARMA(1,1) GARCH(1,1)PCA model with stable distributed innovations that reflects the charac teristics of energy: mean reversion, heteroskedasticity, seasonality, and spikes. Then, we propose the method for selecting the portfolio of energy futures by maximizing the STARR ratio, what we call "Winner portfolio". The empirical studies by using energy futures of WTI crude oil, heating oil, and
natural gas
traded on the NYMEX compare the price return models with stable distributed innovations to those with normal ones. We show that the models with stable ones are more appropriate for energy futures than those with normal ones. In addition, we discuss what characteristics of energy futures cause the stable distributed innovations in the returns. Then, we generate the price returns of energy futures using the ARMA(1,1)GARCH(1,1)PCA model with stable ones and choose the portfolio of energy futures employing the generated price returns. The results suggest that the selected portfolio of "Winner portfolio" perform better than the average weighted portfolio of "Loser portfolio". Finally, we examine the usefulness of the STARR ratio to select the winner portfolio of energy futures.
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)
Citation Context
(3)
...In particular, we assume the marginals evolve as an ARMA(0,
2
)GARCH(0,2) model with stable paretian residuals and the joint distribution of residuals is estimated with an asymmetric tcopula...
...In particular, we assume the marginals evolve as an ARMA(0,2)GARCH(0,
2
) model with stable paretian residuals and the joint distribution of residuals is estimated with an asymmetric tcopula...
...� Step 8 Once we have described the multivariate behavior of standardized innovation at time T+1 using relation (
2
) we can generate S scenario of the vector of innovation " (s)...
...From this preliminary analysys we deduce that the above asset returns are well approximated by an ARMA(
2
,0)GARCH(0,2) model...
...From this preliminary analysys we deduce that the above asset returns are well approximated by an ARMA(2,0)GARCH(0,
2
) model...
...That is, for each series (j = 1;:::;5) the formulas (1,
2
, 3) are represented by:...
Sergio Ortobelli
,
et al.
PORTFOLIO SELECTION BASED ON A SIMULATED COPULA
...
Biglova et al. (2008 )
u se atcopula to capture the dependence...
...More recently,
Biglova et al. (2008)
have argued that characteristics such as mean reversion should be incorporated in modeling energy prices...
...As there is mixed evidence of mean reversion for crude oil (
Biglova et al. 2008;
Dias 2004; Paddock et al. 1988), for generality, we incorporate this feature in the proposed copula model...
Hemantha S. B. Herath
,
et al.
Crack spread option pricing with copulas
...3 See Sun et al. (2008) and
Biglova et al. (2008)
...
...14 See among others, Chopra and Ziemba (1993), Papp et al. (2005), Kondor et al. (2007), Rachev et al. (2005), Sun et al. (2008), and
Biglova et al. (2008)
)...
...See, among others, Rachev et al. (2005), Sun et al. (2008),
Biglova et al. (2008)
, and Cherubini et al. (2004) for the definition of some classical copula used in finance literature...
Almira Biglova
,
et al.
Modeling, Estimation, and Optimization of Equity Portfolios with Heavy...
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Citations
(4)
PORTFOLIO SELECTION BASED ON A SIMULATED COPULA
(
Citations: 2
)
Sergio Ortobelli
,
Almira Biglova
A NOTE ON THE IMPACT OF NON LINEAR REWARD AND RISK MEASURES
(
Citations: 2
)
Almira Biglova
,
Sergio Ortobelli
Crack spread option pricing with copulas
Hemantha S. B. Herath
,
Pranesh Kumar
,
Amin H. Amershi
Journal:
Journal of Economics and Finance
, pp. 122
Modeling, Estimation, and Optimization of Equity Portfolios with Heavytailed Distributions
Almira Biglova
,
Sergio Ortobelli
,
Svetlozar Rachev