Value at Risk of Gold Futures Trading During Pandemic Covid-19 - With Log-Normal Distribution Assumption Using Monte Carlo Simulation Method

Oct 12, 2026

Uploaded by Finn

Investment can yield significant profits, but it also introduces unexpected risks, making quantitative risk measurement essential for investors. This study analyzes the maximum losses faced by investors in gold commodity trading using Gold Comex Futures (GC = F) over 2013–2023, assuming returns follow a Log-Normal distribution. Monte Carlo Simulation is applied to estimate VaR, showing longer horizons increase risk due to higher volatility. Backtesting under normal conditions before and after Covid-19 indicates VaR accuracy, while during the pandemic VaR becomes inaccurate and requires model review for decision-making.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages11

Reading Time4 min

AccessFree to download

I. INTRODUCTION

Risk measurement and common tools

VaR as a risk measure

Gold futures and risk factors

Gold investment types

Monte Carlo simulation in VaR modeling

| RESEARCH ARTICLE Value at Risk of Gold Futures Trading During Pandemic Covid-19 with Log-Normal Distribution Assumption Using Monte Carlo Simulation Method Fahrudin Muhtarulloh1, Aliya Rifayani Ghifari2, Mia Siti Khumaeroh3 1,2,3 Department of Mathematics, Sunan Gunung Djati State Islamic University, Bandung Indonesia Corresponding Author: Fahrudin Muhtarulloh, E-mail: [fahrudin.math@uinsgd.ac.id](fahrudin.math@uinsgd.ac.id) | ABSTRACT Investment provides the potential for great profits, but it does not rule out the possibility of unexpected risks. Risk calculation analysis needs to be carried out so that it can help investors understand the level of risk involved in gold investment. This study discusses the calculation of the highest losses experienced by investors for gold commodity investments in Gold Comex Futures (GC = F) in 2013-2023 with the Return value assumed to be distributed Log-Normal. The method used in this study is Monte Carlo Simulation. The results of this study indicate that the Return of the gold price GC = F which is transformed into a lognormal distribution results in an accurate VaR calculation in reflecting investment risk. Longer time periods tend to show higher levels of risk than shorter time periods, due to greater price volatility in the long term. In addition, this study proves that the Covid-19 pandemic has a significant impact on gold futures trading. The results of the VaR model back testing under normal conditions, namely before and after the Covid-19 pandemic, show that accurate VaR can be used, while under abnormal conditions, namely during the pandemic, the VaR model is inaccurate or the VaR model must be reviewed to be used as an investment decision. | KEYWORDS Value at Risk; investment; log-normal distribution; monte carlo simulation; backtesting; kupiec test | ARTICLE DOI: I. INTRODUCTION Investment is the act or process of allocating funds or resources into various types of assets or financial instruments with the aim of achieving long-term capital growth [1] . Making an investment does promise a large potential profit, but it does not rule out the possibility of an unexpected risk. Risk Management is an important element because it can help the Company identify future losses, operational inefficiencies, and provide a healthier business line. In Risk Management, a risk measurement is carried out. Common tools used to measure risk include standard deviation, beta, Value at Risk, and Conditional Value at Risk or other risk models that can be developed with better results. VaR is often used to measure the risk value in investment. VaR is a common risk measure used for financial risk management because the concept is simple, easy to calculate, and can be applied directly [2] . The use of Value at Risk is the most recommended option by the Bank of International Settlements (BIS) to measure risk [3] . VaR can help companies manage financial risk by identifying potential losses that may occur. By setting acceptable VaR limits, companies can take preventive measures or manage risks appropriately to minimize their negative impacts. In addition, this method provides important information in making investment decisions. By evaluating the VaR of various investment alternatives, companies can choose a portfolio that has a level of risk that is in accordance with the company's risk tolerance. VaR also helps in determining the optimal position size in an investment portfolio. Value at Risk measurement can be used to measure the potential loss in an investment in the form of futures commodities. Gold is a promising investment commodity for investors. Generally, investing in gold is considered as an inflation hedge against economic uncertainty. Its value tends to be stable or even increase. However, it is worth investing, of course there are risks that need to be considered. Gold is one of the commodities that involves significant risk. Gold prices can be very volatile in the

FAQs

What method is used to calculate VaR in this study?

The study uses Monte Carlo Simulation to estimate Value at Risk for gold futures returns.

How does the Log-Normal distribution assumption affect the VaR results?

Transforming the gold return (GC = F) into a Log-Normal distribution produces an accurate VaR calculation for reflecting investment risk.

How does the Covid-19 pandemic influence VaR backtesting?

Backtesting shows VaR is accurate under normal conditions (before and after the pandemic), but becomes inaccurate during the pandemic, implying the VaR model must be reviewed for investment decisions.

Oct 12, 2026

Uploaded by Finn