Dynamic VaR Measurement of Gold Market with SV-T-MN Model

Abstract EN

VaR (Value at Risk) in the gold market was measured and predicted by combining stochastic volatility (SV) model with extreme value theory.

Firstly, for the fat tail and volatility persistence characteristics in gold market return series, the gold price return volatility was modeled by SV-T-MN (SV-T with Mixture-of-Normal distribution) model based on state space.

Secondly, future sample volatility prediction was realized by using approximate filtering algorithm.

Finally, extreme value theory based on generalized Pareto distribution was applied to measure dynamic risk value (VaR) of gold market return.

Through the proposed model on the price of gold, empirical analysis was investigated; the results show that presented combined model can measure and predict Value at Risk of the gold market reasonably and effectively and enable investors to further understand the extreme risk of gold market and take coping strategies actively.