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A note on the large homogeneous portfolio approximation with the Student-t copula

Author

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  • Lutz Schloegl
  • Dominic O’Kane

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Abstract

We extend the Large Homogeneous Portfolio (LHP) approximation to the case of the Student-t copula, and provide analytic formulae for the density and the cdf of the portfolio loss distribution. We compare the Value-at-Risk implied by the Student-t copula to that obtained using the Gaussian as well as two prominent members of the Archimedean family, namely the Clayton and the Gumbel copulae. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Lutz Schloegl & Dominic O’Kane, 2005. "A note on the large homogeneous portfolio approximation with the Student-t copula," Finance and Stochastics, Springer, vol. 9(4), pages 577-584, October.
  • Handle: RePEc:spr:finsto:v:9:y:2005:i:4:p:577-584 DOI: 10.1007/s00780-004-0142-7
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    References listed on IDEAS

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    1. Acerbi, Carlo, 2002. "Spectral measures of risk: A coherent representation of subjective risk aversion," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1505-1518, July.
    2. L. Randall Wray & Stephanie Bell, 2004. "Introduction," Chapters,in: Credit and State Theories of Money, chapter 1 Edward Elgar Publishing.
    3. Philippe Robert-Demontrond & R. Ringoot, 2004. "Introduction," Post-Print halshs-00081823, HAL.
    4. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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    Cited by:

    1. Konstantinos Spiliopoulos, 2014. "Systemic Risk and Default Clustering for Large Financial Systems," Papers 1402.5352, arXiv.org, revised Feb 2015.
    2. Lee, Yongwoong & Poon, Ser-Huang, 2014. "Forecasting and decomposition of portfolio credit risk using macroeconomic and frailty factors," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 69-92.
    3. Ascheberg, Marius & Bick, Björn & Kraft, Holger, 2013. "Hedging structured credit products during the credit crisis: A horse race of 10 models," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1687-1705.
    4. Chen, Jianli & Liu, Zhen & Li, Shenghong, 2014. "Mixed copula model with stochastic correlation for CDO pricing," Economic Modelling, Elsevier, vol. 40(C), pages 167-174.
    5. Rösch, Daniel & Scheule, Harald, 2016. "The role of loan portfolio losses and bank capital for Asian financial system resilience," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 289-305.
    6. Gunter Meissner & Seth Rooder & Kristofor Fan, 2013. "The impact of different correlation approaches on valuing credit default swaps with counterparty risk," Quantitative Finance, Taylor & Francis Journals, vol. 13(12), pages 1903-1913, December.
    7. repec:eee:ecofin:v:42:y:2017:i:c:p:193-217 is not listed on IDEAS

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