Interest Rate Risk Management Based on Copula-GARCH Models
AbstractThe paper is aimed at making comparative analysis of main market risk features based on the copula-modeling and on the traditional approach which neglects the asymmetry and the fat tails of interest rates joint multivariate distribution. R software is used for practical implementation of the introduced methodology when dealing with copulas.Copula application makes it possible to reveal that the interest rates joint multivariate distribution is asymmetric, i.e. interest rates tend more frequently to rise simultaneously, than to decline. It is also shown that copulas help diminish the expected value of equity-at-risk breaches by 7–13% depending on the chosen confidence level
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Bibliographic InfoArticle provided by Publishing House "SINERGIA PRESS" in its journal Applied Econometrics.
Volume (Year): 13 (2009)
Issue (Month): 1 ()
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Web page: http://appliedeconometrics.cemi.rssi.ru/
copula; EVEaR; interest rate risk; Russia; MosPrime; OFZ; yield curve;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- 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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