Value-at-risk estimation with the optimal dynamic biofuel portfolio

doi:10.1016/j.eneco.2010.11.002

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Title:	Value-at-risk estimation with the optimal dynamic biofuel portfolio
Authors:	Chang, Ting-Huan;Su, Hsin-Mei;Chiu, Chien-Liang
Contributors:	淡江大學財務金融學系
Keywords:	VaR;Dynamic biofuel portfolio;ARJI model
Date:	2011-03
Issue Date:	2011-10-01 00:59:29 (UTC+8)
Publisher:	Amsterdam: Elsevier BV * North-Holland
Abstract:	In the past, petroleum companies only paid attention to hedging the variation in the crude oil price and volatility. However, they have now expanded their analysis to encompass renewable sources, such as corn and soybeans, under the current low-carbon biofuel obligations. This paper employs GARCH(1,1) and ARJI models to estimate the one-day-ahead Value-at-Risk (VaR) of the optimal dynamic biofuel portfolio, which consists of crude oil, corn and soybeans. The optimal blended standard is subject to the dual limitations of minimum production costs and the lowest biofuel using requirements. Our empirical findings confirm that the ARJI model is more suitable than the GARCH (1,1) model and further captures the discontinuous jump behavior from the in-the-sample data. The results of out-of-sample forecasts also are represented that our models play important roles in VaR estimation and risk management for biofuel portfolio. We therefore suggest that the petroleum companies should simultaneously pay attention to jump risk in hedging material costs in the prices of energy-related crops.
Relation:	Energy Economics 33(2), pp.264-272
DOI:	10.1016/j.eneco.2010.11.002
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Journal Article

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