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An Econometric Study of Vine Copulas

Author

Listed:
  • Dominique Guegan

    (Centre d'Economie de la Sorbonne - Paris School of Economics)

  • Pierre-André Maugis

    (Centre d'Economie de la Sorbonne - Paris School of Economics)

Abstract

We present a new recursive algorithm to construct vine copulas based on an underlying tree structure. This new structure is interesting to compute multivariate distributions for dependent random variables. We proove the asymptotic normality of the vine copula parameter estimator and show that all vine copula parameter estimators have comparable variance. Both results are crucial to motivate any econometrical work based on vine copulas. We provide an application of vine copulas to estimate the VaR of a portfolio, and show they offer significant improvement as compared to a benchmark estimator based on a GARCH model

Suggested Citation

  • Dominique Guegan & Pierre-André Maugis, 2010. "An Econometric Study of Vine Copulas," Documents de travail du Centre d'Economie de la Sorbonne 10040, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:10040
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    Cited by:

    1. Matthieu Garcin & Dominique Guegan & Bertrand Hassani, 2018. "A novel multivariate risk measure: the Kendall VaR," Post-Print halshs-01467857, HAL.
    2. Dominique Guegan & Bertrand K. Hassani, 2016. "Risk Measures At Risk- Are we missing the point? Discussions around sub-additivity and distortion," Documents de travail du Centre d'Economie de la Sorbonne 16039, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Dominique Guegan & Bertrand K. Hassani, 2016. "Risk Measures At Risk- Are we missing the point? Discussions around sub-additivity and distortion," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01318093, HAL.
    4. Dominique Guegan & Bertrand K. Hassani, 2016. "Combining risk measures to overcome their limitations - spectrum representation of the sub-additivity issue, distortion requirement and added-value of the Spatial VaR solution: An application to Regul," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01391103, HAL.
    5. Ruili Sun & Tiefeng Ma & Shuangzhe Liu & Milind Sathye, 2019. "Improved Covariance Matrix Estimation for Portfolio Risk Measurement: A Review," JRFM, MDPI, vol. 12(1), pages 1-34, March.
    6. Dominique Guegan & Bertrand K. Hassani, 2016. "Risk Measures At Risk- Are we missing the point? Discussions around sub-additivity and distortion," Post-Print halshs-01318093, HAL.
    7. Dominique Guegan & Bertrand Hassani, 2014. "Stress Testing Engineering: the real risk measurement?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00951593, HAL.
    8. Dominique Guegan & Bertrand K. Hassani, 2016. "Combining risk measures to overcome their limitations - spectrum representation of the sub-additivity issue, distortion requirement and added-value of the Spatial VaR solution: An application to Regul," Post-Print halshs-01391103, HAL.
    9. Dominique Guegan & Bertrand Hassani, 2012. "Multivariate VaRs for Operational Risk Capital Computation: a Vine Structure Approach," Post-Print halshs-00587706, HAL.
    10. Dominique Guegan & Bertrand K. Hassani, 2016. "Combining risk measures to overcome their limitations - spectrum representation of the sub-additivity issue, distortion requirement and added-value of the Spatial VaR solution: An application to Regulatory Requirement for Financial Institutions," Documents de travail du Centre d'Economie de la Sorbonne 16066, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    11. Dominique Guegan & Bertrand Hassani, 2011. "Multivariate VaRs for Operational Risk Capital Computation: a Vine Structure Approach," Documents de travail du Centre d'Economie de la Sorbonne 11017r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Oct 2011.
    12. Zhang, Bangzheng & Wei, Yu & Yu, Jiang & Lai, Xiaodong & Peng, Zhenfeng, 2014. "Forecasting VaR and ES of stock index portfolio: A Vine copula method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 112-124.
    13. Bukre Yildirim Kulekci & Gulden Poyraz & Ismail Gur & Ozan Evkaya, 2023. "Dependence Analysis of the ISE100 Banking Sector Using Vine Copula," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 55-81, June.
    14. Matthieu Garcin & Dominique Guegan & Bertrand Hassani, 2017. "A novel multivariate risk measure: the Kendall VaR," Documents de travail du Centre d'Economie de la Sorbonne 17008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    15. Matthieu Garcin & Dominique Guegan & Bertrand Hassani, 2017. "A novel multivariate risk measure: the Kendall VaR," Documents de travail du Centre d'Economie de la Sorbonne 17008r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Apr 2018.
    16. Matthieu Garcin & Dominique Guegan & Bertrand Hassani, 2018. "A novel multivariate risk measure: the Kendall VaR," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01467857, HAL.
    17. Ozan Evkaya & İsmail Gür & Bükre Yıldırım Külekci & Gülden Poyraz, 2024. "Vine Copula Approach to Understand the Financial Dependence of the Istanbul Stock Exchange Index," Computational Economics, Springer;Society for Computational Economics, vol. 64(5), pages 2935-2980, November.
    18. Chebbi, Ali & Hedhli, Amel, 2022. "Revisiting the accuracy of standard VaR methods for risk assessment: Using the Copula–EVT multidimensional approach for stock markets in the MENA region," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 430-445.
    19. Dominique Guegan & Bertrand Hassani, 2011. "Multivariate VaRs for Operational Risk Capital Computation: a Vine Structure Approach," Documents de travail du Centre d'Economie de la Sorbonne 11017rr, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Apr 2012.
    20. Antonov I. N. & Knyazev A. G. & Lepekhin O. A., 2016. "Copula Models of the Joint Distribution of Exchange Rates," World of economics and management / Vestnik NSU. Series: Social and Economics Sciences, Socionet, vol. 16(4), pages 20-38.
    21. Dominique Guegan & Bertrand Hassani, 2014. "Stress Testing Engineering: the real risk measurement?," Post-Print halshs-00951593, HAL.

    More about this item

    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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