ArticlePloS one2024
Modeling the distribution of jet fuel price returns based on fat-tail stable Paretian distribution.
Article in PloS one, 2024. The graph could read no effect estimate from its abstract, so it casts no vote on the map. Not yet cited in PubMed.
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6 authors.
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Abstract
Jet fuel plays a crucial role as an essential energy source in aerospace and aviation operations. The recent increase in fuel prices has presented airlines with the new challenge of managing jet fuel costs to ensure consistent cash flow and minimize operational uncertainties. The conventional risk prediction models used by airlines often assume that risks are normally distributed according to the classical Central Limit Theorem, which can lead to under-hedging. This paper proposes an innovative approach using the stable Paretian model to analyze the price return of jet fuel in large samples. It comprehensively compares the fitting effect of the stable Paretian distribution with that of the normal distribution based on specific criteria and non-parametric significance tests. Furthermore, it investigates the accuracy of risk measures such as Value at Risk (VaR) and Conditional Value at Risk (CVaR) predicted by both models. In addition to comparing differences in VaR between predicted values and actual values, this paper provides a more comprehensive comparison of risk measures under rolling window forecast situation. Results suggest that despite indistinguishable results in VaR backtest, the stable Paretian distribution has a overall better fitting effect as well as a less biased predicted CVaR based on the AIC of -14099.46, BIC of -14110.98, p = 0.58 in Kolmogorov-Smirnov test and p = 0.46(0.92) in the 0.01(0.05) significance level of Expected Shortfall Regression Test. This might be explained by its ability to capture asset return dynamics while maintaining shape stability with few parameters. This research can provide valuable insights for guiding airlines' risk management decisions. its ability to capture asset return dynamics while maintaining shape stability with few parameters. This research can provide valuable insights for guiding airlines' risk management decisions.
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