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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.

Suggested Citation

  • Ales Kresta & Tomas Tichy, 2012. "International Equity Portfolio Risk Modeling: The Case of the NIG Model and Ordinary Copula Functions," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(2), pages 141-161, May.
  • Handle: RePEc:fau:fauart:v:62:y:2012:i:2:p:141-161
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    References listed on IDEAS

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    1. Katja Ignatieva & Eckhard Platen, 2010. "Modelling Co-movements and Tail Dependency in the International Stock Market via Copulae," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, pages 261-302.
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    4. Nikolay Nenovsky & S. Statev, 2006. "Introduction," Post-Print halshs-00260898, HAL.
    5. Jeremy Berkowitz & Peter Christoffersen & Denis Pelletier, 2011. "Evaluating Value-at-Risk Models with Desk-Level Data," Management Science, INFORMS, pages 2213-2227.
    6. Peter Christoffersen, 2004. "Backtesting Value-at-Risk: A Duration-Based Approach," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(1), pages 84-108.
    7. Pritsker, Matthew, 2006. "The hidden dangers of historical simulation," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 561-582, February.
    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. 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.
    2. Katarzyna Guhn, 2013. "Krotkoterminowe planowanie finansowe na przykladzie przedsiebiorstwa z branzy sprzedaz hurtowa wyrobow chemicznych," Working Papers hal-00816775, HAL.

    More about this item

    Keywords

    market risk; backtesting; subordinated Lévy model; VaR;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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