Stress-testing for portfolios of commodity futures
Journal
Economic Modelling
ISSN
0264-9993
ISSN-Digital
1873-6122
Type
journal article
Date Issued
2015-11-01
Author(s)
Abstract
In this paper, we perform stress-testing for a portfolio of commodity futures which mimics the dynamics of the DJ-UBS index. We identify extreme events that impacted commodity prices over time and look at correlation structures in a dynamic way, with copula functions. In line with Basel III financial regulations, we derive baseline, historical, and hybrid scenarios and discussed their advantages and shortfalls. We find that the financialization of commodity markets led to an increase in correlations and in the probability for joint extremes. However, we identify structural breaks in commodity markets that temporarily led to a breakdown of expected statistical patterns and of traditional dependence structures among commodities. This fact shows the need for forward-looking stress testing techniques, like hybrid and hypothetical scenarios, as encouraged by financial regulators.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
50
Start page
9
End page
18
Pages
10
Subject(s)
Eprints ID
241912