An Application of Value at Risk and Extreme Value Theory in the Risk Management of Iranian Oil Selling Revenues

In general, energy prices volatility and oil price as a special case have a significant effect on the commodity markets. Although, most of concerns are about the oil price increase and its effect on the economic and industry sectors for oil consuming countries, the oil price declining is the most concern of the oil producing countries. This is the case because in most of these countries, the financial structure are relying on the oil selling revenues and huge variations in the oil price result significant effect on the revenues of government. Value at Risk is a risk measure which presents the exposure of risk for a determined significant level in a specific period of time. According to the fact that most of financial and commodity markets have non-normal behavior and there is a great chance for occurring extreme events, the extreme value theory have been used in this paper to calculate the VaR. The results of EVT model is compared with the results of GARCH-based normal and t-student model and the superiority of EVT model for estimating VaR in oil markets is verified. Keywords: