Title

Risk management of precious metals

Source of Publication

Quarterly Review of Economics and Finance

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. 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. © 2011 The Board of Trustees of the University of Illinois.

Document Type

Article

First Page

435

Last Page

441

Publication Date

11-1-2011

DOI

10.1016/j.qref.2011.07.002

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