RISK MANAGEMENT WITH TAIL COPULAS FOR EMERGING MARKET PORTFOLIOS

Yıl 2011, Cilt: 3 Sayı: 1, 219 - 228, 01.06.2011

Svetlana Borovkova

Öz

We study the tail dependence of emerging markets in South-East Asia and we show that this tail dependence increased during the financial crisis of 2008-2010. After applying ARMA-GARCH models to individual markets, we fit various copulas to the pairs of market returns and find that in most cases tail copulas such as the t-copula and Symmetrised Joe-Clayton provide the best fit. During the crisis, nonlinear dependence measures (such as rank correlations) and the tail dependence coefficients typically increased by tenfold or even more. We apply our method to portfolio Value-at-Risk estimation and show that the copula-based Value-at-Risk performs remarkably well for South-East Asian market portfolios

Anahtar Kelimeler

emerging markets, copulas, tail dependence, Value-at-Risk

Kaynakça

• McNeil, Alexander, Rudiger Frey and Paul Embrechts (2005), Quantitative Risk Management,
• Princeton University Press. Mendes, Beatriz (2005), “Asymmetric extreme interdependence in emerging equity markets”,
• Appl. Stochastic Models Bus. Ind., No. 21, pp. 483-498. Rodriguez, Juan Carlos (2007), “Measuring financial contagion: A Copula approach”, Journal of
• Empirical Finance, Vol. 14, pp. 401-423.