Russia–Ukrainian war: measuring the intraday risk dynamics of energy futures contracts using VaR and CVaR

Abstract

Purpose

This paper investigates the influence of the ongoing crisis of Russia's incursion on Ukraine on the risk dynamics of energy futures contracts with high-frequency data on four different futures contracts using risk metrics of value at risk (VaR) and conditional value at risk (CVaR) for the USA market.

Design/methodology/approach

The author used different generalised autoregressive conditional heteroscedasticity - Extreme Value Theory (GARCH)-EVT models and compared the performance of each of the competing models. Backtesting evidence shows that VaR and CVaR combined with GARCH-EVT better estimate risk.

Findings

The study results show that combined risk metrics are efficient and adaptive to estimating the risk dynamics and backtesting of the models, revealing that the autoregressive moving average (ARMA) (1,1)-asymmetric power autoregressive conditional heteroscedasticity (APARCH) model performs relatively better than other models.

Practical implications

The paper has practical implications for different market participants. From the risk manager's and day traders' angles, the market participants can estimate the risk exposure in the energy futures contract and take positions accordingly. The results are important for oil-importing countries due to the developing supply crisis and price escalation, which can brew inflation in the economy.

Originality/value

To the best of the author's knowledge, the paper is the first to throw light on the risk angle of energy futures contracts during the ongoing crisis of the Russia–Ukraine war.

Citation

Banerjee, A.K. (2023), "Russia–Ukrainian war: measuring the intraday risk dynamics of energy futures contracts using VaR and CVaR", Journal of Risk Finance, Vol. 24 No. 3, pp. 324-336. https://doi.org/10.1108/JRF-05-2022-0116