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

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 log-normal 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.