Measuring the Implied Volatility and the Value at Risk of the Commodity Futures Contracts. We Examine Contracts of Wheat, Corn, Cocoa, Soybean, Coffee and Orange Juice

In this article, we measure the implied volatility and the value at risk of the commodity futures contracts. We examine contracts of wheat, corn, cocoa, soybean, coffee and orange juice. Hedge funds use managed futures in terms of commodities such as wheat, corn, cocoa, soybean, coffee and orange juice. CTA, commodity trading advisers, or managed futures managers’ trade in the commodity market. A standardized future contract is traded based on a specified amount at a fixed future date and at a fixed price. The fact that there is a clearing house that regulate the settlements through a margin call make the standardized futures contract more safe by eliminating the credit risk of default. We use a value at risk methodology, VaR. We demonstrate the extent to which the mean-variance approach underestimates the tail risk of the probability distribution. We compare the long and short - run performance returns after fees deduction with the expected losses that are recorded at particular month with 95% and 99% confidence levels. The implied volatility is quite high as there are large fluctuations of average returns of commodity futures. The sample is provided from Data Feeder dataset. It includes managed futures hedge funds for the period 1990 to 2003