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Open AccessArticle

Forecasting Energy Value at Risk Using Multiscale Dependence Based Methodology

by Kaijian He 1,2,*, Rui Zha 2, Yanhui Chen 3 and Kin Keung Lai 4,5
1
School of Business, Hunan University of Science and Technology, Xiangtan 411201, China
2
School of Economics and Management, Beijing University of Chemical Technology, Beijing 100029, China
3
School of Economics and Management, Shanghai Maritime University, Shanghai 201306, China
4
Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Pokfulam Road, Hong Kong, China
5
International Business School, Shaanxi Normal University, Xi’an 710119, China
*
Author to whom correspondence should be addressed.
Academic Editors: J.A. Tenreiro Machado and António M. Lopes
Entropy 2016, 18(5), 170; https://doi.org/10.3390/e18050170
Received: 6 February 2016 / Revised: 19 April 2016 / Accepted: 20 April 2016 / Published: 4 May 2016
(This article belongs to the Special Issue Computational Complexity)
In this paper, we propose a multiscale dependence-based methodology to analyze the dependence structure and to estimate the downside portfolio risk measures in the energy markets. More specifically, under this methodology, we formulate a new bivariate Empirical Mode Decomposition (EMD) copula based approach to analyze and model the multiscale dependence structure in the energy markets. The proposed model constructs the Copula-based dependence structure formulation in the Bivariate Empirical Mode Decomposition (BEMD)-based multiscale domain. Results from the empirical studies using the typical Australian electricity daily prices show that there exists a multiscale dependence structure between different regional markets across different scales. The proposed model taking into account the multiscale dependence structure demonstrates statistically significantly-improved performance in terms of accuracy and reliability measures. View Full-Text
Keywords: energy markets; portfolio value at risk; copula GARCH model; Bivariate Empirical Mode Decomposition (BEMD); entropy energy markets; portfolio value at risk; copula GARCH model; Bivariate Empirical Mode Decomposition (BEMD); entropy
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He, K.; Zha, R.; Chen, Y.; Lai, K.K. Forecasting Energy Value at Risk Using Multiscale Dependence Based Methodology. Entropy 2016, 18, 170.

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