Does Asymmetric Dependence Structure Matter? A Value-at-Risk View
AbstractTo 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.
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Bibliographic InfoArticle provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.
Volume (Year): 7 (2008)
Issue (Month): 3 (December)
value-at-risk; asymmetry; dependence structure; copula; multivariate GARCH model;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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