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Risk Management with Copulas

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  • Anish Goorah

Abstract

Real Estate Risk Management tools are traditionally based on mean-variance analysis. The non-normal behaviour of financial asset returns including real estate securities is a violation of one of the fundamental assumptions of mean-variance analysis. In this paper, the pitfalls of using the correlation coefficient as a measure of dependency is first discussed. The use of Copulas as an alternative to modeling the dependence structure and more generally as a risk-management tool is proposed. Copula based Value-at-Risk computations are also carried out.

Suggested Citation

  • Anish Goorah, 2007. "Risk Management with Copulas," ERES eres2007_170, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2007_170
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2007-170
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    Cited by:

    1. Martin Hoesli & Kustrim Reka, 2013. "Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 1-35, July.
    2. Jian Zhou & Yanmin Gao, 2012. "Tail Dependence in International Real Estate Securities Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 45(1), pages 128-151, June.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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