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Measure of Financial Risk using Conditional Extreme Value Copulas with EVT Margins
Company: Journal of Risk
Company Url: Click here to open
Year Of Publication: 2009
Month Of Publication: June
Resource Link: Click here to open
Pages: 51-85
Download Count: 0
View Count: 1834
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 6-25-2011
Publisher: Administrator
Summary
In this paper we propose a method to estimate the value-at-risk (VaR) of a portfolio based on a combination of time series, extreme value theory and copula fitting. Given multivariate financial data, we use a univariate ARMA-GARCH model for each return series. We then fit a generalized Pareto distribution to the tails of the residuals to model the distributions of marginal residuals, followed by a bivariate extreme value copula fitting, which is used to estimate portfolio VaR via simulation. As a first step, this method is applied to two portfolios, each composed of two indexes. As a second step, we extend the method to portfolios based on three indexes. In this case dependence between residuals is modeled by using trivariate nested copulas. The reported results demonstrate that conditional extremevalue copula methods provide a better representation of the dependence structure of multivariate data and produce the most accurate estimates of risk, both for standard and for more extreme VaR quantiles.
(volume 11, number 4)
May be downloaded without charge from Risk.net by clicking "Buy from Publisher". (accessed 2013-05-28)
Author(s)
Ghorbel, Ahmed Sign in to follow this author
Trabelsi, Abdelwahed Sign in to follow this author
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