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On the isolated impact of copulas on risk measurement: Asimulation study

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  • Berger, Theo

Abstract

This paper quantifies the impact of fundamental copula approaches on applied risk measurement with particular focus on Value-at-Risk (VaR) forecasts.The application of a simulation study reveals the impact of misspecified dependence modeling on VaR forecasts. In particular, accounting for several degrees of joint extreme movements and time varying dependence of the simulated return series, it is the t copula that describes a robust approach to achieve adequate VaR forecasts.

Suggested Citation

  • Berger, Theo, 2016. "On the isolated impact of copulas on risk measurement: Asimulation study," Economic Modelling, Elsevier, vol. 58(C), pages 475-481.
    • Handle: RePEc:eee:ecmode:v:58:y:2016:i:c:p:475-481
    DOI: 10.1016/j.econmod.2015.12.012
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    References listed on IDEAS

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    1. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
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    11. Fantazzini, Dean, 2009. "The effects of misspecified marginals and copulas on computing the value at risk: A Monte Carlo study," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2168-2188, April.
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    Cited by:

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    2. Beatriz de la Flor & Javier Ojea-Ferreiro & Eva Ferreira, 2022. "The Hedging Cost of Forgetting the Exchange Rate," Documentos de Trabajo del ICAE 2022-01, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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