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2011•Unpublished venueRequires access

Analysis of portfolio VaR by time-varying pair-copula

Jie Cao, Cheng Xi-jun

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Abstract

A pair-copula method was used to construct the practical distribution of multiple asset returns and joint distribution function of dependency for studying portfolio.Then,time-varying pair-copula was obtained by the bivariate time-varying copula instead of the bivariate static copula.With Monte Carlo simulation technique,the calculation method of portfolio VaR was given.Finally,the advantage and feasibility of this model are proved through empirical analysis.

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What this paper is about

A pair-copula method was used to construct the practical distribution of multiple asset returns and joint distribution function of dependency for studying portfolio.Then,time-varying pair-copula was obtained by the bivariate time-varying copula instead of the bivariate static copula.With Monte Carlo simulation technique,the calculation method of portfolio VaR was given.Finally,the advantage and feasibility of this model are proved through empirical analysis.

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Available abstract

A pair-copula method was used to construct the practical distribution of multiple asset returns and joint distribution function of dependency for studying portfolio.Then,time-varying pair-copula was obtained by the bivariate time-varying copula instead of the bivariate static copula.With Monte Carlo simulation technique,the calculation method of portfolio VaR was given.Finally,the advantage and feasibility of this model are proved through empirical analysis.

Key concepts: Copula (linguistics), Bivariate analysis, Joint probability distribution, Econometrics, Portfolio, Mathematics, Marginal distribution, Monte Carlo method

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