Risk management of precious metals

Shawkat Hammoudeh, Farooq Malik, Michael McAleer

Research output: Contribution to journalArticlepeer-review

55 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)435-441
Number of pages7
JournalQuarterly Review of Economics and Finance
Volume51
Issue number4
DOIs
StatePublished - Nov 2011
Externally publishedYes

Keywords

  • Conditional volatility
  • G1
  • Precious metals
  • Risk management
  • Value-at-risk

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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