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arXiv · 2311.00832

Estimation of VaR with jump process: application in corn and soybean markets

Minglian Lin·Indranil SenGupta·William Wilson
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Abstract

Value at Risk (VaR) is a quantitative measure used to evaluate the risk linked to the potential loss of investment or capital. Estimation of the VaR entails the quantification of prospective losses in a portfolio of investments, using a certain likelihood, under normal market conditions within a specific time period. The objective of this paper is to construct a model and estimate the VaR for a diversified portfolio consisting of multiple cash commodity positions driven by standard Brownian motions and jump processes. Subsequently, a thorough analytical estimation of the VaR is conducted for the proposed model. The results are then applied to two distinct commodities -- corn and soybean -- enabling a comprehensive comparison of the VaR values in the presence and absence of jumps.

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Minglian Lin, Indranil SenGupta, William Wilson. 2023-11-01. Estimation of VaR with jump process: application in corn and soybean markets. https://doi.org/10.1002/asmb.2880

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