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A Generalized Error Distribution Copula-based method for portfolios risk assessment

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  • Cerqueti, Roy
  • Giacalone, Massimiliano
  • Panarello, Demetrio

Abstract

In this paper, we deal with the evaluation of Conditional Value-at-Risk in the framework of portfolio theory by using a modified Gaussian Copula – where the modification is obtained by introducing the Generalized Correlation Coefficient – and by assuming a Generalized Error Distribution with properly estimated shape parameter p for the returns of the considered risky assets. In so doing, we add to the connection between standard Copula theory and financial risk assessment. A comparison analysis of our findings with those obtainable through a standard Gaussian Copula-based procedure in a set of real data is also presented.

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  • Cerqueti, Roy & Giacalone, Massimiliano & Panarello, Demetrio, 2019. "A Generalized Error Distribution Copula-based method for portfolios risk assessment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 687-695.
    • Handle: RePEc:eee:phsmap:v:524:y:2019:i:c:p:687-695
    DOI: 10.1016/j.physa.2019.04.077
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    Cited by:

    1. Massimiliano Giacalone & Demetrio Panarello, 2022. "A Nonparametric Approach for Testing Long Memory in Stock Returns’ Higher Moments," Mathematics, MDPI, vol. 10(5), pages 1-21, February.
    2. James, Nick & Menzies, Max & Gottwald, Georg A., 2022. "On financial market correlation structures and diversification benefits across and within equity sectors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 604(C).
    3. Nick James & Max Menzies, 2023. "An exploration of the mathematical structure and behavioural biases of 21st century financial crises," Papers 2307.15402, arXiv.org, revised Sep 2023.
    4. Roy Cerqueti & Massimiliano Giacalone & Raffaele Mattera, 2020. "Skewed non-Gaussian GARCH models for cryptocurrencies volatility modelling," Papers 2004.11674, arXiv.org.
    5. Vincenzo Basile & Massimiliano Giacalone & Paolo Carmelo Cozzucoli, 2022. "The Impacts of Bibliometrics Measurement in the Scientific Community A Statistical Analysis of Multiple Case Studies," Review of European Studies, Canadian Center of Science and Education, vol. 14(3), pages 1-10, November.
    6. Massimiliano Giacalone, 2022. "Optimal forecasting accuracy using Lp-norm combination," METRON, Springer;Sapienza Università di Roma, vol. 80(2), pages 187-230, August.
    7. Nick James & Max Menzies, 2023. "Collective dynamics, diversification and optimal portfolio construction for cryptocurrencies," Papers 2304.08902, arXiv.org, revised Jun 2023.
    8. Nick James, 2021. "Evolutionary correlation, regime switching, spectral dynamics and optimal trading strategies for cryptocurrencies and equities," Papers 2112.15321, arXiv.org, revised Mar 2022.

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    More about this item

    Keywords

    Econophysics; Portfolio theory; Conditional Value-at-Risk; Gaussian Copula; Generalized Error Distribution; Generalized Correlation Coefficient;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions

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