Publication Type

Journal Article

Version

submittedVersion

Publication Date

9-2019

Abstract

Using option market data we derive naturally forward-looking, non-parametric and model-free risk estimates, three desired characteristics hardly obtainable using historical returns. The option-implied measures are only based on the first derivative of the option price with respect to the strike price, bypassing the difficult task of estimating the tail of the return distribution. We estimate and backtest the 1%, 2.5%, and 5% WTI crude oil futures option-implied value at risk and conditional value at risk for the turbulent years 2011–2016 and for both tails of the distribution. Compared with risk estimations based on the filtered historical simulation methodology, our results show that the option-implied risk metrics are valid alternatives to the statistically based historical models.

Keywords

Backtest, Elicitability, Option prices, VaR and CVaR

Discipline

Agribusiness | Economics | Finance and Financial Management

Research Areas

Finance

Publication

Journal of Forecasting

Volume

38

Issue

6

First Page

552

Last Page

563

ISSN

0277-6693

Identifier

10.1002/for.2580

Publisher

Wiley: 24 months

Embargo Period

3-27-2022

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1002/for.2580

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