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| Author: | Melo Mendes, B.V. de Souza, R.M. de |
| Title: | Measuring financial risks with copulas |
| Journal: | International Review of Financial Analysis
2004 : VOL. 13:1, p. 27-45 |
| Index terms: | Financial risk Measurement Stock markets Theories Models |
| Language: | eng |
| Abstract: | This paper is concerned with the statistical modeling of the dependence structure of multivariate financial data using the concept of copulas. Some special copulas are selected and the type of dependency captured by each one is identified. Copulas are fitted to daily returns and simulated from the fitted models. The effect of the choice of copula on risk measures is compared and the variability of one-step-ahead predictions of portfolio losses is assessed. Extreme scenarios are analyzed and extreme value copulas are fitted to the block maxima and minima from daily returns. The stress scenarios constructed are compared to those obtained using models from the extreme value theory. The usefulness of the copula approach is illustrated using two stock market indexes. |
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