Do VaR exceptions have seasonality? An empirical study on Indian commodity spot prices

Abstract

This paper compares three models namely RiskMetrics's EWMA, ARMA-GARCH and APARCH with normal and Student's t-distribution. These models have been applied to spot prices of seven commodities: aluminium, copper, gold, soyabean, guar seed, chana and cardamom. For these seven commodities, daily value-at-risk (VaR) has been computed for different time horizons and VaR exceptions at 99% confidence interval have been calculated. These models are then compared on the basis of number of VaR exceptions and loss function. Commodity prices tend to exhibit higher volatility during certain time of the year due to seasonality in production and consumption. In this context, we test whether VaR exceptions have any relationship with seasonality in spot prices. Keywords: VaR, GARCH, APARCH, RiskMetrics's EWMA, Commodity spot prices, Commodity seasonality