Related papers: Portfolio Risk Assessment using Copula Models
Accurately estimating risk measures for financial portfolios is critical for both financial institutions and regulators. However, many existing models operate at the aggregate portfolio level and thus fail to capture the complex…
Copulas. We study the model risk of multivariate risk models in a comprehensive empirical study on Copula-GARCH models used for forecasting Value-at-Risk and Expected Shortfall. To determine whether model risk inherent in the forecasting of…
We employ and examine vine copulas in modeling symmetric and asymmetric dependency structures and forecasting financial returns. We analyze the asset allocations performed during the 2008-2009 financial crisis and test different portfolio…
A multivariate risk analysis for VaR and CVaR using different copula families is performed on historical financial time series fitted with DCC-GARCH models. A theoretical background is provided alongside a comparison of goodness-of-fit…
We present a joint copula-based model for insurance claims and sizes. It uses bivariate copulae to accommodate for the dependence between these quantities. We derive the general distribution of the policy loss without the restrictive…
Multivariate volatility modeling and forecasting are crucial in financial economics. This paper develops a copula-based approach to model and forecast realized volatility matrices. The proposed copula-based time series models can capture…
In this paper, we study large losses arising from defaults of a credit portfolio. We assume that the portfolio dependence structure is modelled by the Archimedean copula family as opposed to the widely used Gaussian copula. The resulting…
Portfolio selection in the periodic investment of securities modeled by a multivariate Merton model with dependent jumps is considered. The optimization framework is designed to maximize expected terminal wealth when portfolio risk is…
This paper proposes analytic forms of portfolio CoVaR and CoCVaR on the normal tempered stable market model. Since CoCVaR captures the relative risk of the portfolio with respect to a benchmark return, we apply it to the relative portfolio…
As an important tool in financial risk management, stress testing aims to evaluate the stability of financial portfolios under some potential large shocks from extreme yet plausible scenarios of risk factors. The effectiveness of a stress…
Analysis of multivariate time series is a common problem in areas like finance and economics. The classical tool for this purpose are vector autoregressive models. These however are limited to the modeling of linear and symmetric…
Risk evaluation is a forecast, and its validity must be backtested. Probability distribution forecasts are used in this work and allow for more powerful validations compared to point forecasts. Our aim is to use bivariate copulas in order…
Thanks to their ability to capture complex dependence structures, copulas are frequently used to glue random variables into a joint model with arbitrary marginal distributions. More recently, they have been applied to solve statistical…
Several collective risk models have recently been proposed by relaxing the widely used but controversial assumption of independence between claim frequency and severity. Approaches include the bivariate copula model, random effect model,…
In this paper we assume a multivariate risk model has been developed for a portfolio and its capital derived as a homogeneous risk measure. The Euler (or gradient) principle, then, states that the capital to be allocated to each component…
Modern quantitative risk management relies on an adequate modeling of the tail dependence and a possibly accurate quantification of risk measures, like Value at Risk (VaR), at high confidence levels like 1 in 100 or even 1 in 2000. Quantum…
We consider the problem of accurately measuring the credit risk of a portfolio consisting of loss exposures such as loans, bonds and other financial assets. We are particularly interested in the probability of large portfolio losses. We…
This paper studies multivariate Value-at-Risk (VaR) for financial portfolios with a focus on modeling dependence structures through Archimedean copulas. Using the generator representation of Archimedean copulas, we derive explicit…
We propose a dependence-aware predictive modeling framework for multivariate risks stemmed from an insurance contract with bundling features - an important type of policy increasingly offered by major insurance companies. The bundling…
In this paper, we present a two-stage stochastic international portfolio optimisation model to find an optimal allocation for the combination of both assets and currency hedging positions. Our optimisation model allows a "currency overlay",…