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Portfolio Risk Assessment using Copula Models

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  • Mikhail Semenov
  • Daulet Smagulov

Abstract

In the paper, we use and investigate copulas models to represent multivariate dependence in financial time series. We propose the algorithm of risk measure computation using copula models. Using the optimal mean-$CVaR$ portfolio we compute portfolio's Profit and Loss series and corresponded risk measures curves. Value-at-risk and Conditional-Value-at-risk curves were simulated by three copula models: full Gaussian, Student's $t$ and regular vine copula. These risk curves are lower than historical values of the risk measures curve. All three models have superior prediction ability than a usual empirical method. Further directions of research are described.

Suggested Citation

  • Mikhail Semenov & Daulet Smagulov, 2017. "Portfolio Risk Assessment using Copula Models," Papers 1707.03516, arXiv.org.
    • Handle: RePEc:arx:papers:1707.03516
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    References listed on IDEAS

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    Cited by:

    1. Lu Lu & Sujit Ghosh, 2023. "Nonparametric Estimation of Multivariate Copula Using Empirical Bayes Methods," Mathematics, MDPI, vol. 11(20), pages 1-22, October.

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