Modeling dependence based on mixture copulas and its application in risk management |
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Authors: | Zi-sheng Ouyang Hui Liao Xiang-qun Yang |
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Institution: | [1]School of Information, Hunan University of Commerce, Changsha 410205, China [2]School of Mathematics, Hunan Normal University, Changsha 410081, China |
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Abstract: | This paper is concerned with the statistical modeling of the dependence structure of multivariate financial data using the
copula, and the application of copula functions in VaR valuation. After the introduction of the pure copula method and the
maximum and minimum mixture copula method, authors present a new algorithm based on the more generalized mixture copula functions
and the dependence measure, and apply the method to the portfolio of Shanghai stock composite index and Shenzhen stock component
index. Comparing with the results from various methods, one can find that the mixture copula method is better than the pure
Gaussian copula method and the maximum and minimum mixture copula method on different VaR level. |
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Keywords: | Gaussian mixture copula value-at-risk dependence back-test Spearman's rho |
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