Value at risk (VaR) in energy markets: Effectiveness of VaR in managing energy price risk

20th International Mining Congress and Exhibition of Turkey (IMCET 2007) -- JUN 06-08, 2007 -- Ankara, TURKEYWOS: 000248289300027All over the world in recent years, energy products are exposed to high price volatility due to the increasing deregulation and liberalization efforts in energy sector, imbalance of supply and demand, increasing needs of energy, storage-delivery problems and etc. Price fluctuations have negative affect on both suppliers and consumers operating in energy markets; as a result, price risk needs to be hedged. One of the effective ways of price risk hedging purposes is using VaR methods. VaR is a generally accepted method that assesses price risk in a single number by using statistical and simulation models. In this study, hypothetical energy futures contracts portfolio's daily risk numbers are measured by VaR methods, namely; Historical Simulation and Monte Carlo Simulation. In order to test success of daily VaR numbers, backtesing method is applied. As a result, it is observed that both Historical Simulation and Monte Carlo Simulation methods meet the requirements of Basel Criterion.Sci & Technol Res Council Turkey, Turkish Coal Enterprises, Eti Mine Works Gen Management, Turkish Hardcoal Enterprises, Yildizlar Holding, Black Sea Copper Works, Eti Copper Corp, Dedeman Holding, Chamber Mining Engineers Turke