Does Asymmetric Dependence Structure Matter?A Value-at-Risk View

To investigate the importance of asymmetric dependence structures for portfolio value-at-risk (VaR) and conditional VaR (CVaR) calculations, we introduce bivariate copula functions with two GJR-GARCH models as marginals. The results show that the copula models and the competing dynamic conditional c...

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Bibliographic Details
Published inInternational Journal of Business and Economics Vol. 7; no. 3; pp. 249 - 268
Main Author Lai, YiHao
Format Journal Article
LanguageChinese
English
Published 台灣 逢甲大學 01.12.2008
International Journal of Business and Economics
Subjects
asymmetry
copula
dependence structure
Mathematical functions
multivariate GARCH model
Portfolio performance
Rates of return
Stochastic models
Studies
value-at-risk
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Summary:To investigate the importance of asymmetric dependence structures for portfolio value-at-risk (VaR) and conditional VaR (CVaR) calculations, we introduce bivariate copula functions with two GJR-GARCH models as marginals. The results show that the copula models and the competing dynamic conditional correlation (DCC) model are valid for almost all two-asset portfolios with different weights. However, among models validated with standard procedures, copula models with asymmetric dependence structures can save capital charges for market risks and reduce potential loss compared with those with symmetric dependence structures and with the competing DCC model, implying that asymmetric dependence structures are of great importance in improving VaR and CVaR calculations not only from a statistical but also an economic perspective.
ISSN:1607-0704