Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077011 | Insurance: Mathematics and Economics | 2009 | 10 Pages |
Abstract
Copula functions represent a methodology that describes the dependence structure of a multi-dimension random variable and has become one of the most significant new tools to handle risk factors in finance, such as Value-at Risk (VaR), which is probably the most widely used risk measure in financial institutions. Combining copula and the forecast function of the GARCH model, this paper proposes a new method, called conditional copula-GARCH, to compute the VaR of portfolios. This work presents an application of the copula-GARCH model in the estimation of a portfolio's VaR, composed of NASDAQ and TAIEX. The empirical results show that, compared with traditional methods, the copula model captures the VaR more successfully. In addition, the Student-t copula describes the dependence structure of the portfolio return series quite well.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Jen-Jsung Huang, Kuo-Jung Lee, Hueimei Liang, Wei-Fu Lin,