Template-Type: ReDIF-Paper 1.0
Author-Name: Hammoudeh, S.M.
Author-Name-Last: Hammoudeh
Author-Name-First: Shawkat
Author-Person: pha672
Author-Name: Malik, F.
Author-Name-Last: Malik
Author-Name-First: Farooq
Author-Name: McAleer, M.J.
Author-Name-Last: McAleer
Author-Name-First: Michael
Author-Person: pmc90
Title: Risk management of precious metals
Abstract: This paper examines volatility and correlation dynamics in price returns of gold, silver, platinum and palladium, and explores the corresponding risk management implications for market risk and hedging. Value-at-Risk (VaR) is used to analyze the downside market risk associated with investments in precious metals, and to design optimal risk management strategies. We compute the VaR for major precious metals using the calibrated RiskMetrics, different GARCH models, and the semi-parametric Filtered Historical Simulation approach. Different risk management strategies are suggested, and the best approach for estimating VaR based on conditional and unconditional statistical tests is documented. The economic importance of the results is highlighted by assessing the daily capital charges from the estimated VaRs. The risk-minimizing portfolio weights and dynamic hedge ratios between different metal groups are also analyzed.
Creation-Date: 2010-07-29
File-URL: https://repub.eur.nl/pub/20166/EI2010-48.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2010-48
Classification-JEL: G1
Keywords: conditional volatility, precious metals, risk management, value-at-risk
Handle: RePEc:ems:eureir:20166