Risk Management of Fuel Hedging Strategy Based on CVaR and Markov Switching GARCH in Airline Company

Round 1

Reviewer 1 Report

Well written.

Author Response

Thanks for your comment

Reviewer 2 Report

The manuscript discussed hedging strategy based on conditional VaR and Markov Switching GARCH model. It has some application values regarding the methods and practices in the airline industry. However, some more details of parameter estimation and computation of CVaR should be elaborated on. The paper can be reconsidered for publication after the following major concerns are addressed.

1. Section 3.2 should be expanded to explain how MCMC is implemented in this paper, especially the choice of the prior distributions of the parameters. How to sample \tao parameters?

2. In Section 4.2, more details about the ADF test should be elaborated on and how it could be applied to verify the time series after the first differencing is stable.

3. How did the MS-GARCH method fit the data? More statistical tests should be done to prove it is a sound method to fit the empirical data.

3. In Section 4.4, how the values (for example, mean, std) in Table 4 are computed? How do you set up the density function p(S)?

4. Another section to connect the computation of CVaR with hedging strategy should be added and described. 

5. I think the writing of the manuscript should be significantly improved, for example, the major contribution of this paper, and why the modeling work in this paper is important.

I would entertain to read an improved version before a decision could be made.

 

Author Response

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Author Response File: Author Response.docx

Reviewer 3 Report

This paper uses Markov Switching GARCH to conduct risk management of hedging strategy in air company. In this way, authors use CVaR (conditional value at risk) to estimate position risk and use Markov chain Monte Carlo (MCMC) algorithm to estimate the parameters of MS-GARCH based on Gibbs sampling. The raw data is from Shanghai Futures Stock Exchange. And results from this model show that this framework has obvious effect in terms of the risk management of hedging, which has a certain guiding significance for reality. This paper needs some improved as follows:

1- The abstract should explain clearly why your framework is better than others in your proposed part.

2- The reference should be cited in a standard form. For example, in line 284 and 285, the reference may be misused.

3- Some symbols in the article and equations should be clearly explained . For example, in line 156, the α and β should be explained before or after using. There are somewhere else do not be explain it.

4- The format and figure of the article should be carefully checked. In line 227, figure (a) and figure (b) are the same. The alpha -2 ‘s figure should be changed correctly.

5- The methodology (section 3) should be described in more detail and more systematically. Please reconsider the equations in section 3.3, explain the more clearly.

6- The format of the article should be carefully checked. In Figure 2: Pseudo code of MCMC, the pseudo may be not so directly and Intelligible. Please describe your steps carefully.

7- Please add more comparative experiments to ensure the rationality of your article and validity of the model.

Author Response

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Reviewer 4 Report

Dear all,

After review of the paper titled "Risk Management of Fuel Hedging Strategy based on CVaR and Markov Switching GARCH in Airline Company" which submitted to the sustainability, I think that this paper is suitable for publication but after major revision as following:

The authors can use some recent references from sustainability Journal

The authors can revise some grammatical spelling

The authors can delete the following sentences in page 9:

6. Patents

This section is not mandatory but may be added if there are patents resulting from the work reported in this manuscript.

Supplementary Materials: The following supporting information can be downloaded at: www.mdpi.com/xxx/s1, Figure S1: title; Table S1: title; Video S1: title.

 

After that authors revise this paper based on my comments, the editor can accept this paper

 

All the best

 

Author Response

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Author Response File: Author Response.docx

Round 2

Reviewer 4 Report

Dear Sir,

After review of this paper, I think that it is suitable for publication in the current form.

 

All the best