Study On Risk Measurement Of Silver Futures Market Based On Extreme Value Theory

Affected by the subprime mortgage crisis in the United States in2008, an new round of economic crisis brock out around the globe world.Both commodity markets and energy market decline seriously. However the world’s precious metal market is thriving to achieve contiunous steady growth. Along with gold’s price continued rise, more and more people are fond of investment on gold and silver and it also has become an excellent choice for investors to against currency crises. Concerning gold investment boom in recent years, some scholars have pointed out that ’When all sit down at one side of a boat, you should move to the other side’, therefore we can conclude that the emerging silver investment market owns greater potential. On the other hand China formally launch the silver futures market in May this year, more and more begin to concern silver investment and it make a boom in silver investment market. As an emerging investment market, this investment boom is showing explosive growth in China. To management authorities it is obligatory to manage and control the risk of entire investment market to avoid the outbreak of large-scale financial investment crisis. Otherside to investors, considering of risk minimization principle it is especially important to take much more attention to investment risk which is hiddened behind the huge returns. Though the risk measurement of silver investment market in China becomes particularly important, but now few scholars engaged in this research. Based on extreme value theory, this paper study on VaR and try to measure China’s silver futures market risk. Its purpose is to do some contribution to China’s silver market risk aversion and management and provide reference to silver investors and future research.Now the mainstream risk measure method is Value at Risk(VaR) model which is put forward by J.P.Morgan Investment Bank.But VaR method usually ignores the influence of extreme events and it is contrary to the principle that in the financial risk management extreme events risk deserves to be concerned in particular. Then VaR supposes that the return series fits the normal distribution and it is inconsistent with the actual situation because usually financial asset returns are mostly fat-tail and have excess kurtosis. Extreme value theory exactly makes up those above defects. Extreme value theory is a method which is used to analyze and predict the risk of small probability events. Its main purpose is to assess the risk of extreme events, which is a correction to the problem that VaR underestimates the tail risk which is caused by the normal distribution assumption. On the other hand, China’s silver investment market now is in the initial development stage and affected by various factors the market often rises and falls significantly. Therefore research on risk measurement of silver futures market with extreme value theory is consistent with the actual situation and have theroetical basis.Beginning with a simple introduction of extreme value theory,this paper introduces Peaks Over Threshold(POT) emphatically and makes an empirical research on Shanghai silver futures market.Firstly this article fits the return series by distribution FIGARCH-t and gets an innovation sequence,then fits the innovation sequence by Generalized Pareto Distribution(GPD).Considering of the selection of the threshold,this paper adopts wavelet analysis method.At last this article calculates the Value at Risk(VaR) and makes the backtesting test.To consider bivariate extreme value theory as the representative for multivariate extreme value theory, then this paper makes a simple introduction and takes Shanghai gold futures market and Shanghai silver futures market as research sample ande analysis of tail extremum correlation of two return series distribution.As to academic significance,this paper is attempt to do further study on extreme value theory and provides some reference about risk measure and management to the authority and investors of silver futures.