Monte Carlo-Expected Tail Loss for Analyzing Risk of Commodity Futures Based on Holt-Winters Model

Wisnowan Hendy Saputra

doi:10.30598/pijmathvol4iss1pp7-16

Wisnowan Hendy Saputra Institut Teknologi Sepuluh Nopember

DOI: https://doi.org/10.30598/pijmathvol4iss1pp7-16

Keywords: Commodity Futures, Expected Tail Loss, Holt-Winters Model, Monte Carlo, Risk Analysis

Abstract

Future, an agreement to buy or sell an asset at a certain price and a certain time in the future, is one of the market derivatives because the underlying assets influence the price of futures. In general, futures divide into financial futures and commodity futures. Each of the futures has different risks, so risk measures are needed to improve the effectiveness and efficiency of investment management. For example, we have the London Metal Exchange (LME) in the metal scope of commodity futures. Therefore, we propose the Holt-Winters Model for estimating commodity prices in this study. Hereafter, The Expected Tail Loss (ETL) with Monte Carlo process will use to analyze risk measures. We took six commodity futures in LME to implement the method as a sample, such as Zinc, Lead, Aluminum, Copper, Nickel, and Tin. Based on the analysis, each commodity has a different mean ETL value, where Nickel has the most significant risk with an ETL value of 0.036. This value means that the possibility of the expected loss to be borne by investors is 3.6%.

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