A Wavelet Based Multi Scale VaR Model for Agricultural Market

Kaijian He, Kin Keung Lai, Sy Ming Guu, Jinlong Zhang

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

7 Scopus citations

Abstract

Participants in the agricultural industries are subject to significant market risks due to long production lags. Traditional methodology analyzes the risk evolution following a time invariant approach. However, this paper analyzes and proposes wavelet analysis to track risk evolution in a time variant fashion. A wavelet-econometric hybrid model is further proposed for VaR estimates. The proposed wavelet decomposed VaR (WDVaR) is ex-ante in nature and is capable of estimating risks that are multi-scale structured. Empirical studies in major agricultural markets are conducted for both the hybrid ARMA-GARCH VaR and the proposed WDVaR. Experiment results confirm significant performance improvement. Besides, incorporation of time variant risks tracking capability offers additional flexibility for adaptability of the proposed hybrid algorithm to different market environments. WDVaR can be tailored to specific market characteristics to capture unique investment styles, time horizons, etc.

Original languageEnglish
Title of host publicationModelling, Computation and Optimization in Information Systems and Management Sciences - Second International Conference, MCO 2008, Proceedings
Pages429-438
Number of pages10
DOIs
StatePublished - 2008
Externally publishedYes
Event2nd International conference on Modelling, Computation and Optimization in Information Systems and Management Sciences, MCO 2008 - Metz, France
Duration: 08 09 200810 09 2008

Publication series

NameCommunications in Computer and Information Science
Volume14
ISSN (Print)1865-0929

Conference

Conference2nd International conference on Modelling, Computation and Optimization in Information Systems and Management Sciences, MCO 2008
Country/TerritoryFrance
CityMetz
Period08/09/0810/09/08

Keywords

  • Value at Risk
  • financial
  • risk management
  • time series analysis
  • wavelets and fractals

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