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Risk Management with Copulas

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  • Anish Goorah

Abstract

Real Estate Risk Management tools are traditionally based on mean-variance analysis. The non-normal behaviour of financial asset returns including real estate securities is a violation of one of the fundamental assumptions of mean-variance analysis. In this paper, the pitfalls of using the correlation coefficient as a measure of dependency is first discussed. The use of Copulas as an alternative to modeling the dependence structure and more generally as a risk-management tool is proposed. Copula based Value-at-Risk computations are also carried out.

Suggested Citation

  • Anish Goorah, 2007. "Risk Management with Copulas," ERES eres2007_170, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2007_170
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2007-170
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    Cited by:

    1. Andréas Heinen & James B. Kau & Donald C. Keenan & Mi Lim Kim, 2021. "Spatial Dependence in Subprime Mortgage Defaults," The Journal of Real Estate Finance and Economics, Springer, vol. 62(1), pages 1-24, January.
    2. Anderson, Randy I. & Chen, Yi-Chi & Wang, Li-Min, 2015. "A range-based volatility approach to measuring volatility contagion in securitized real estate markets," Economic Modelling, Elsevier, vol. 45(C), pages 223-235.
    3. Louis Chakkalakal & Ulrich Hommel & Wenwei Li, 2018. "Transport infrastructure equities in mixed-asset portfolios: estimating risk with a Garch-Copula CVaR model," Journal of Property Research, Taylor & Francis Journals, vol. 35(2), pages 117-138, April.
    4. Jian Zhou & Yanmin Gao, 2012. "Tail Dependence in International Real Estate Securities Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 45(1), pages 128-151, June.
    5. Wang, Gang-Jin & Xie, Chi, 2015. "Correlation structure and dynamics of international real estate securities markets: A network perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 176-193.
    6. Martin Hoesli & Kustrim Reka, 2013. "Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 1-35, July.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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