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Estimating and evaluating V alue‐at‐ R isk forecasts based on realized variance: empirical evidence from ICE B rent C rude oil futures
Author(s) -
Haugom Erik,
Veka Steinar,
Lien Gudbrand,
Westgaard Sjur
Publication year - 2014
Publication title -
opec energy review
Language(s) - English
Resource type - Journals
eISSN - 1753-0237
pISSN - 1753-0229
DOI - 10.1111/opec.12024
Subject(s) - percentile , econometrics , futures contract , volatility (finance) , realized variance , economics , quantile , statistics , mathematics , financial economics
This paper is the first to use the concept of realized volatility to forecast Value‐at‐Risk ( VaR ) for ICE B rent C rude oil futures. We examine sensitivities in the VaR forecasts across intra‐daily sampling frequency used to calculate realized volatility. We evaluate the VaR forecasts using C hristoffersen's test for conditional coverage on quantiles of particular interest. Additionally, we examine a percentile–percentile plot of the VaR forecasts for all percentiles. The main empirical results show that very good VaR forecasts can be obtained using G aussian critical values in combination with volatility forecasts based on realized volatility. An examination of the sampling frequency suggests that the most accurate VaR forecasts are obtained with a sampling frequency of between 1 and 10 min. This has important implications for practitioners operating in the financial oil sector.