Risk Measures For Crude Oil Spot Market

In recent years, the oil price has had ups and downs across the world, which is due to the unstable economic environment coupled with the influence of geopolitical factors. However, with China’s rapid economic development, the demand for oil is increasing. The volatility in oil price will have a huge impact on China. In a micro perspective sense, Chinese petrochemical enterprises and transportation industry are affected by this volatility and this volatility also has a significant macro impact on China’s economic security and national security. However, from the international oil market environment, China’s oil reserves are low. The increasing oil demand lead to China’s dependence on foreign oil continues to rise, and since her lacking of the right to speak about the price on the international oil market, the country is in a passive position. Therefore, to measure and research on the volatility of oil price, not only can help us to understand the trend of oil price and according to the trend in advance for some powerful operation or reserve, but also help managers and institutional investors to avoid risk. It has an important significance.Firstly, this paper introduces the current international popular risk measure-value at risk (VaR). And through selecting the European Brent (Brent) crude oil price return series for the study, the descriptive statistical analysis of its sequence features indicates the return series enjoy the characteristic of volatility clustering and fat tail shape. So this paper uses the GARCH model to fit the yield sequence, and finds the heteroscedasticity can be greatly reduced, the VaR value is then calculated.Secondly, this paper introduces the extreme value theory(EVT).Although the GARCH model can be a good fit for Brent crude oil price fluctuations for sequence clustering yields, the tail that risk managers concerned cannot be measured well. Although the likelihood of the occurrence of extreme events in the tail is small, once occurred, the losses are difficult to estimate. So this paper combined the GARCH model and the EVT to measure the value of the crude oil spot market risk. The whole thing is conducted as follows, first the GARCH model is adopted to fit the yield sequence and to produce a sequence of standard residuals. Then the POT is used to fit the standard residuals, and eventually the dynamic VaR is calculated.Finally, the Kupiec failure test and loss function method is proposed to test the accuracy of the model. The results showed that the stability and the accuracy obtained by the combination of GARCH-EVT are better than the GARCH models alone. What’s more, on the assumption that the random disturbance follows the generalized error distribution(GED), the use of the GARCH-EVT model for crude oil spot market is the most accurate measure for the risk concerned. And combined with the reality, from the perspective of investment to discuss the risk of oil spot.