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Forecasting The Value-at-Risk Of Multivariate Portfolios Using Dynamic Pair-Copulas
Company: University of Cologne
Company Url: Click here to open
Year Of Publication: 2010
Month Of Publication: May
Resource Link: Click here to open
Pages: 31
Download Count: 11
View Count: 1736
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 7-4-2010
Publisher: Administrator
Summary
Literature on the use of copulas for the estimation of the Value at risk of a portfolio is substantial; however, most of these approaches are based either on bivariate or very restrictive multivariate copula models. Using the theory of pair copulas, we introduce a new model to dynamically estimate the Value at Risk for multivariate stock portfolios on a daily basis.
For our forecast we first model the time series of log-returns of each stock individually with an ARMA model while using a GARCH model with different error term distributions for the residuals. To account for the dependence structure between the different stock returns we fit various families of pair copulas to the transformed uniformly distributed residual terms. Each day the parameters of the pair copulas are re-estimated based on a moving window approach. After the parameter estimation, out-of-sample simulation techniques are applied to obtain the portfolio distribution for the next day.
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Schnieders, Julius Sign in to follow this author
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