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Predicting the risk of global portfolios considering the non-linear dependence structures

Author

Listed:
  • Marcelo Brutti Righi

    (Universidade Federal de Santa Maria)

  • Paulo Sergio Ceretta

    (Universidade Federal de Santa Maria)

Abstract

In this paper we estimated pair copula constructions (PCC) for three sets of markets: developed, Latin emerging and Asia-Pacific emerging. To that, we used daily prices from January 2003 to November 2011, totaling 1872 observations. The last 200 observations were separated for posterior validation of the estimated PCC. After, we constructed portfolios for each set of markets and we predicted their daily Value at Risk (VaR) for distinct significance levels, considering the dependence structure previously estimated, in the 200 days of the out-sample period. The results allow concluding that there were differences in the dependence structure of each set of markets. Further, the PCC were validated through backtesting of the predicted VaRs.

Suggested Citation

  • Marcelo Brutti Righi & Paulo Sergio Ceretta, 2012. "Predicting the risk of global portfolios considering the non-linear dependence structures," Economics Bulletin, AccessEcon, vol. 32(1), pages 282-294.
    • Handle: RePEc:ebl:ecbull:eb-12-00050
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    References listed on IDEAS

    as
    1. Genest, Christian & Rémillard, Bruno & Beaudoin, David, 2009. "Goodness-of-fit tests for copulas: A review and a power study," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 199-213, April.
    2. Clarke, Kevin A., 2007. "A Simple Distribution-Free Test for Nonnested Model Selection," Political Analysis, Cambridge University Press, vol. 15(3), pages 347-363, July.
    3. Kojadinovic, Ivan & Yan, Jun, 2010. "Modeling Multivariate Distributions with Continuous Margins Using the copula R Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 34(i09).
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    Cited by:

    1. Marcelo Brutti Righi & Paulo Sergio Ceretta, 2013. "Pair Copula Construction based Expected Shortfall estimation," Economics Bulletin, AccessEcon, vol. 33(2), pages 1067-1072.
    2. Marcelo Brutti Righi & Paulo Sergio Ceretta, 2012. "Global Risk Evolution and Diversification: a Copula-DCC-GARCH Model Approach," Brazilian Review of Finance, Brazilian Society of Finance, vol. 10(4), pages 529-550.

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    More about this item

    Keywords

    Pair Copula Construction; Risk Management; Global Markets; Backtesting;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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