Modelling oil and gas supply disruption risks using extreme-value theory and copula

Abstract

In this paper, we are concerned with modelling oil and gas supply disruption risks using extreme-value theory and copula. We analyse financial and volumetric losses due to both oil and gas supply disruptions and investigate their dependence structure using real data. In order to illustrate the impact of crude oil and natural gas supply disruptions on an energy-dependent economy, Nigeria is considered as a case study. Computational studies illustrate that the generalized extreme-value distribution anticipates higher financial losses and extreme-value copulas produce the best fit for financial and volumetric losses compared with normal copulas. Moreover, multivariate financial losses exhibit stronger positive dependence than volumetric losses.

Keywords:

• risk management
• supply disruptions
• copula
• extreme-value theory