PORTFOLIO OPTIMIZATION OF DYNAMIC COPULA MODELS FOR DEPENDENT FINANCIAL DATA USING CHANGE POINT APPROACH

Abstract

In this paper, the portfolio optimization based on CV aR is performed using the dynamic copula model for financial data. Determining thebest model of dependency between financial data has an important role intaking appropriate investment decisions. Due to the financial data is alwaysağected by the *uctuations of the economic factors, the dynamic model washandled. On the other hand change point detection is also important for investment decisions. So this study presents an application of dynamic copulamodel with change point approach. We take the currency data (USD andEUR) from Turkish Central Bank to construct a portfolio. This study consists of two stages. In the first stage, the marginal distributions and copulamodels of currency data are defined for full sample, and the portfolio optimization based on CV aR is performed. In the second stage, the change periodsof copula models are determined using binary segmentation method, and the portfolio optimization based on CV aR is performed for each period

Keywords

• Dynamic copula, change point, Conditional Value at Risk (CV aR),portfolio optimization

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26. Current address : Emel KIZILOK KARA, Kirikkale University, Faculty of Arts and Sciences, Department of Actuarial Science, Kirikkale - TURKEY
27. E-mail address : [e-mail]
28. Current address : Sibel ACIK KEMALOGLU Ankara University, Faculty of Sciences, Depart- ment. of Statistics, Ankara, TURKEY (Corresponding Author)
29. E-mail address : [e-mail]