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The Scientific World Journal
Volume 2015 (2015), Article ID 125958, 7 pages
http://dx.doi.org/10.1155/2015/125958
Research Article

Estimating Risk of Natural Gas Portfolios by Using GARCH-EVT-Copula Model

1 Faculty of Economics, Chiang Mai University, 2397 Suthep, A. Mueang, Chiang Mai 200060, Thailand
2School of Economics, Northwest Normal University, Lanzhou, China
3The People’s Bank of China, Zhang Ye City Branch, Zhangye, China
4Faculty of Economics and Management, Yunnan Normal University, Yunnan, China

Received 25 July 2014; Revised 9 November 2014; Accepted 30 November 2014

Academic Editor: WingKeung Wong

Copyright © 2015 Jiechen Tang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper concentrates on estimating the risk of Title Transfer Facility (TTF) Hub natural gas portfolios by using the GARCH-EVT-copula model. We first use the univariate ARMA-GARCH model to model each natural gas return series. Second, the extreme value distribution (EVT) is fitted to the tails of the residuals to model marginal residual distributions. Third, multivariate Gaussian copula and Student -copula are employed to describe the natural gas portfolio risk dependence structure. Finally, we simulate N portfolios and estimate value at risk (VaR) and conditional value at risk (CVaR). Our empirical results show that, for an equally weighted portfolio of five natural gases, the VaR and CVaR values obtained from the Student -copula are larger than those obtained from the Gaussian copula. Moreover, when minimizing the portfolio risk, the optimal natural gas portfolio weights are found to be similar across the multivariate Gaussian copula and Student -copula and different confidence levels.