Risk measurement of China's foreign energy investment portfolio based on Copula-VaR

Abstract

Energy is an important resource for the development of the country, and investment in energy can promote the development of the national economy. Many scholars are currently using Copula models to predict the risk of energy investments to improve investment efficiency. However, most studies are not systematic enough and focus on countries outside of China. We use the Copula-VaR method with the Archimedean Copula function and the Copula-VaR method with the introduction of tail correlation to calculate the energy futures risk. The risk of six different percentages of China's foreign energy portfolio for three futures on natural gas, oil, and coal between January 3, 2015 and December 30, 2021 is calculated and compared to the traditional method. The results show that the risk values calculated using the improved Copula-VaR model are 0.00836, 0.00922, 0.00217, 0.00635, 0.00612 and 0.00827 higher under the 0.98 confidence level than under the 0.96 confidence level. It has a high accuracy compared with the traditional method. The research in this paper provides an idea for the design of energy investment programs in China