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Modeling the Dependence of Losses of a Financial Portfolio Using Nested Archimedean Copulas

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  • Wendkouni Yaméogo
  • Diakarya Barro

Abstract

In financial analysis, stochastic models are more and more used to estimate potential outcomes in a risky framework. This paper proposes an approach of modeling the dependence of losses on securities, and the potential loss of the portfolio is divided into sectors each including two subsectors. The Weibull model is used to describe the stochastic behavior of the default time while a nested class of Archimedean copulas at three levels is used to model the maximum of the value at risk of the portfolio.

Suggested Citation

  • Wendkouni Yaméogo & Diakarya Barro, 2021. "Modeling the Dependence of Losses of a Financial Portfolio Using Nested Archimedean Copulas," International Journal of Mathematics and Mathematical Sciences, John Wiley & Sons, vol. 2021(1).
    • Handle: RePEc:wly:jijmms:v:2021:y:2021:i:1:n:4651044
    DOI: 10.1155/2021/4651044
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    References listed on IDEAS

    as
    1. Marius Hofert & Matthias Scherer, 2011. "CDO pricing with nested Archimedean copulas," Quantitative Finance, Taylor & Francis Journals, vol. 11(5), pages 775-787.
    2. Capéraà, Philippe & Fougères, Anne-Laure & Genest, Christian, 2000. "Bivariate Distributions with Given Extreme Value Attractor," Journal of Multivariate Analysis, Elsevier, vol. 72(1), pages 30-49, January.
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