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Are Copula-GoF-Tests of Any Practical Use? Results from a Simulation Study
Company: University of Bochum
Company Url: Click here to open
Year Of Publication: 2009
Month Of Publication: November
Pages: 40
Download Count: 8
View Count: 1536
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-17-2010
Publisher: Administrator
Summary
In this paper, the optimality of bivariate copula-VaR models and the usefulness of several goodness-of-fit tests for copulas are analysed by the use of a comprehensive simulation study. In particular, I try to answer two questions: (1) Which parametric copula is optimal for estimating the VaR and Expected Shortfall (ES) of a given portfolio consisting of linear assets? (2) How can the in terms of accurate VaR- or ES-estimates optimal parametric copula be identified beforehand? To answer these questions, the VaR and ES for a total of 12,000 bivariate portfolios are estimated from 435 linear assets over eight different time windows. The results show that although copula-models with GARCH-margins yield considerably better VaR-estimates than correlation-based models, the identification of the optimal parametric copula form is a serious unsolved problem. The analysis of three state-of-the-art approaches for testing a copula-model's goodness-of-fit showed that none of the tests is able to id
Author(s)
Weiss, Gregor N. Sign in to follow this author
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