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Value-at-Risk dynamics: a copula-VAR approach

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  • Giovanni De Luca
  • Giorgia Rivieccio
  • Stefania Corsaro

Abstract

In financial research and among risk management practitioners the estimation of a correct measure of the Value-at-Risk still proves interesting. A current approach, the multivariate CAViaR allows to provide an accurate measure of VaR modelling the joint dynamics in the Values-at-Risk by capturing the quantile conditional dependence structure to take into account financial contagion risk. The parameter estimates are based on multiple quantile regressions which assume linear combinations of sample quantiles. In this paper we argue that the analysis of multiple time-series aimed to model the time-varying quantile dependence can require non-linear and flexible estimation procedures. To this end, we examine the conditional quantile behaviour of some assets included in the Eurostoxx50 with respect to the quantile of a portfolio representing the market with a new copula-based quantile Vector AutoRegressive approach, and compare the results with the bivariate CAViaR model. Findings show that the copula approach is highly competitive, providing a time-varying model aimed to give a better specification of the Value-at-Risk, especially in terms of loss functions.

Suggested Citation

  • Giovanni De Luca & Giorgia Rivieccio & Stefania Corsaro, 2020. "Value-at-Risk dynamics: a copula-VAR approach," The European Journal of Finance, Taylor & Francis Journals, vol. 26(2-3), pages 223-237, February.
    • Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:223-237
    DOI: 10.1080/1351847X.2019.1652665
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    Cited by:

    1. Pier Francesco Procacci & Tomaso Aste, 2022. "Portfolio optimization with sparse multivariate modeling," Journal of Asset Management, Palgrave Macmillan, vol. 23(6), pages 445-465, October.
    2. Makushkin, Mikhail & Lapshin, Victor, 2020. "Modelling tail dependencies between Russian and foreign stock markets: Application for market risk valuation," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 57, pages 30-52.
    3. Joel Hinaunye Eita & Charles Raoul Tchuinkam Djemo, 2022. "Quantifying Foreign Exchange Risk in the Selected Listed Sectors of the Johannesburg Stock Exchange: An SV-EVT Pairwise Copula Approach," IJFS, MDPI, vol. 10(2), pages 1-29, April.

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