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Posouzení odhadu měnového rizika portfolia pomocí Lévyho modelů
[Examination of Portfolio Currency Risk Estimation by Means of Lévy Models]

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  • Tomáš Tichý

Abstract

Financial risk modeling, measuring, and managing are an inherent part of management in financial institutions. It is also an important step within the setting of optimal level of capital eligible to cover risk exposures. A significant portion of capital is usually assigned to cover the risk of unexpected changes in FX rates. FX rates (the returns) commonly exhibit significant skewness and relatively huge kurtosis. In this paper, we apply subordinated Lévy models coupled together by ordinary elliptical copula functions in order to estimate the FX rate risk of normalized portfolio. Selected models are applied in order to estimate the risk ex-post, as well as ex-ante. The models are also compared to the more standard assumption of the joint normal distribution. Although the results for both types of modeling are quite different and Lévy measure is ignored, suggested models deliver us improved risk estimation.

Suggested Citation

  • Tomáš Tichý, 2010. "Posouzení odhadu měnového rizika portfolia pomocí Lévyho modelů [Examination of Portfolio Currency Risk Estimation by Means of Lévy Models]," Politická ekonomie, Prague University of Economics and Business, vol. 2010(4), pages 504-521.
    • Handle: RePEc:prg:jnlpol:v:2010:y:2010:i:4:id:744:p:504-521
    DOI: 10.18267/j.polek.744
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    References listed on IDEAS

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    More about this item

    Keywords

    variance gamma model; normal inverse Gaussian model; Lévy models; ordinary elliptical copula function; financial risk; backtesting;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G2 - Financial Economics - - Financial Institutions and Services

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