Abstract
Measuring the risk of the Chinese Copper futures market is the key point of the risk management. Based on the normal distribution, T-distribution and GED-distribution, this paper measures the VaR values of the risk of the copper futures by GARCH and EGARCH models. Using empirical testing, it shows the EGARCH-N model can characterize the market risk of the copper futures more precisely than other types of models.
Highlights
The basic function of the futures market is to avoid the risk of price fluctuations in the spot market
We calculate the VaR of the cooper futures respectively using GARCH and EGARCH model based on the normal distribution, T distribution and GED distribution
Within the comparative analysis and the test of VaR, we find the optimal model that fit the measurement of copper futures market risk
Summary
The basic function of the futures market is to avoid the risk of price fluctuations in the spot market. Because of the special trading system and operation rules, the futures market introduces some new risk. As there are hedgers, but lots of speculators, the futures market itself contains huge risk. Speculation may bring huge volatility to the price of the futures making the futures market is more risky than the spot market. The price volatility of the futures market maybe can be delivered to the spot market, increase the volatility of the spot market price. We need more strict risk control and management measures for the futures market. How to measure the risk of the futures market accurately has become the key of risk management of futures market
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