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Risk Factors, Copula Dependence and Risk Sensitivity of a Large Portfolio

Author

Listed:
  • Catherine Bruneau

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Alexis Flageollet

    (Natixis Asset Management - SAMS)

  • Zhun Peng

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

Abstract

In this paper, we propose a flexible tool to estimate the risk sensitivity of a high-dimensional portfolio composed of different classes of assets, especially in extreme risk circumstances. We build a so-called Cvine Risk Factors Model (CRFM), which is a non-linear version of a risk factor model in a copula framework. Our tool allows us to decompose the risk of any asset and any portfolio into specific risk directions depending on the context. As an application, we compare the sensitivity of different types of portfolios to extreme risks. We also give an example of a view-type analysis as usually performed by portfolio managers who examine what their portfolio becomes under specific circumstances: here we examine the case of a low inflation context. These analyses allow us to detect changes in the diversification opportunities over time.

Suggested Citation

  • Catherine Bruneau & Alexis Flageollet & Zhun Peng, 2015. "Risk Factors, Copula Dependence and Risk Sensitivity of a Large Portfolio," Post-Print halshs-01166135, HAL.
    • Handle: RePEc:hal:journl:halshs-01166135
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01166135
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    Citations

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    Cited by:

    1. Guillaume Arnould & Catherine Bruneau & Zhun Peng, 2015. "Liquidity and Equity Short term fragility: Stress-tests for the European banking system," Documents de travail du Centre d'Economie de la Sorbonne 15090, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Zhun Peng, 2015. "Sensitivity of Pension Fund's Balance Sheet: a non-linear risk factor approach," Documents de recherche 15-06, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    3. Benkraiem, Ramzi & Garfatta, Riadh & Lakhal, Faten & Zorgati, Imen, 2022. "Financial contagion intensity during the COVID-19 outbreak: A copula approach," International Review of Financial Analysis, Elsevier, vol. 81(C).

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