WTI crude oil option implied VaR and CVaR: An empirical application

Giovanni Barone-Adesi, Marinela Adriana Finta, Chiara Legnazzi, Carlo Sala

Research output: Indexed journal article Articlepeer-review

9 Citations (Scopus)

Abstract

Using option market data we derive naturally forward-looking, nonparametric 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.

Original languageEnglish
Pages (from-to)552-563
Number of pages12
JournalJournal of Forecasting
Volume38
Issue number6
DOIs
Publication statusPublished - 1 Sept 2019
Externally publishedYes

Keywords

  • VaR and CVaR
  • backtest
  • elicitability
  • option prices

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