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International Equity Portfolio Risk Modeling: The Case of the NIG Model and Ordinary Copula Functions

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    Abstract

    Financial risk modeling and management are very important and challenging tasks for financial institutions’ quantitative units. Owing to the complex nature of portfolios, and given recent financial market developments, contemporary research is focused on tail modeling and/or dependency modeling. The main objective of this paper is to examine the potential contribution of Lévy-based subordinated models coupled by ordinary elliptical copula functions to the estimation of the distribution pattern of international equity portfolios. The authors observe that the subordinated NIG model coupled with the Student copula function, and in particular its combined estimation version, allows them to get very good estimates of portfolio risk measures.

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    Bibliographic Info

    Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

    Volume (Year): 62 (2012)
    Issue (Month): 2 (May)
    Pages: 141-161

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    Handle: RePEc:fau:fauart:v:62:y:2012:i:2:p:141-161

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    Related research

    Keywords: market risk; backtesting; subordinated Lévy model; VaR;

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    1. Pritsker, Matthew, 2006. "The hidden dangers of historical simulation," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 561-582, February.
    2. Katja Ignatieva & Eckhard Platen, 2010. "Modelling Co-movements and Tail Dependency in the International Stock Market via Copulae," Asia-Pacific Financial Markets, Springer, vol. 17(3), pages 261-302, September.
    3. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
    4. Peter Christoffersen & Denis Pelletier, 2003. "Backtesting Value-at-Risk: A Duration-Based Approach," CIRANO Working Papers 2003s-05, CIRANO.
    5. Jeremy Berkowitz & Peter Christoffersen & Denis Pelletier, 2011. "Evaluating Value-at-Risk Models with Desk-Level Data," Management Science, INFORMS, vol. 57(12), pages 2213-2227, December.
    6. Madan, Dilip B & Seneta, Eugene, 1990. "The Variance Gamma (V.G.) Model for Share Market Returns," The Journal of Business, University of Chicago Press, vol. 63(4), pages 511-24, October.
    7. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
    8. Huang, Jen-Jsung & Lee, Kuo-Jung & Liang, Hueimei & Lin, Wei-Fu, 2009. "Estimating value at risk of portfolio by conditional copula-GARCH method," Insurance: Mathematics and Economics, Elsevier, vol. 45(3), pages 315-324, December.
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    Cited by:
    1. Katarzyna Guhn, 2013. "Krotkoterminowe planowanie finansowe na przykladzie przedsiebiorstwa z branzy sprzedaz hurtowa wyrobow chemicznych," Working Papers hal-00816775, HAL.
    2. Monika Brzezińska & Katarzyna Guhn, 2013. "Planning of sales on the example of companies in the paper industry and wholesale of chemical products," Working Papers hal-00812840, HAL.

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