Dependence structure and portfolio risk in Iran exchange market by using GARCH-EVT-Copula method
Subject Areas : Financial engineeringFarhad Ghaffari 1 , sahar fathi 2
1 - Department of Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran
2 - Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran.
Keywords: GARCH, COPULA, Value at Risk (VaR), Dependence structure, Portfolio risk, Conditional VaR (CVaR), Extreme value theory (EVT),
Abstract :
Abstract In this research, the GARCH-EVT-COPULA method is investigated to determine the dependency structure and portfolio risk estimation on the foreign exchange market data in Iran. GARCH-EVT models are used to mariginal distribution of each of four currency returns series. For the joint model, we choose five copuls with different dependence structure such as Frank, Clayton, Gumble, Normal and t-Student copulas. In this research portfolio risk is measured using VaR and CVaR.The statistical sample of this study is the daily exchange rate of USD,EURO, Pound and AED for the free market with 5 working days from September to the end of 1396.Based on the results of the research, using the Akaike information criterion values, the t-student function is the best fitted copula model for investigating the dependency structure.Exchange rates have the same upper and lower tail dependencies. Accordingly, in the markets for boom (severe positive) and stagnation (severe negative), the dependence between the two exchange rates is the same.
پویان فر، ا.، و سید موسوی، ح. (1395). " تخمین ارزش در معرض ریسک دادههای درون روزی با ویکرد ". مجله مدلسازی ریسک و مهندسی مالی، دوره 1، شماره 2، 144-129.
راغفر، ح.، و آجورلو، ن. (1395). "برآورد ارزش در معرض خطر پرتفوی ارزی یک بانک نمونه با روش " . فصلنامه پژوهشهای اقتصادی ایران، شماره 67، 141-113.
سجاد، ر.، هدایتی، ش.، و هدایتی، ش. (1393). " برآورد ارزش در معرض خطر با استفاده از نظریه ارزش فرین در بورس اوراق بهادار تهران" . فصلنامه علمی پژوهشی دانش سرمایه گذاری، شماره 9، 155-133.
سوری، ع.، " اقتصاد سنجی جلد دوم"، چاپ چهارم، انتشارات فرهنگ شناسی، 1394.
صادقی، ح.، و بهبودی، س. (1395). " تخمین ارزش در معرض ریسک با استفاده از نظریه ارزش فرین (مطالعه ای در نرخ ارز)" . فصلنامه علمی پژوهشی مدیریت دارایی و تأمین مالی، شماره 2، 94-77.
عبده تبریزی، ح. و رادپور، م. (1388). " اندازه گیری و مدیریت ریسک بازار" انتشارات آگاه و انتشارات پیشرو.
فلاح طلب، ح.، و عزیزی، م. (1393)." کاربرد تئوری مقدار فرین در پیش بینی ارزش در معرض ریسک". فصلنامه علمی پژوهشی دانش سرمایهگذاری، شماره 12، 179-159.
فلاحپور، س.، راعی، ر.، میرزامحمدی، س.، و سید هاشمینژاد، م. (1396). " سنجش ارزش در معرض ریسک شرطی با استفاده از ترکیب مدل و نظریه ارزش فرین". فصلنامه علمی پژوهشی دانش سرمایه گذاری، شماره 23، 259-281.
کشاورز حداد، غ.، و حیرانی، م. (1393). " برآورد ارزش در معرض ریسک با وجود ساختار وابستگی بین بازدهی های مالی: رهیافت مبتنی بر توابع کاپولا". مجله تحقیقات اقتصادی، شماره 4، 869-902.
نصیری، ف.، حسنلو، خ.، و سید ابراهیمی، ب. (1393). " برآورد ارزش در معرض خطر پرتفوی سرمایهگذاری با استفاده از مدلهای کاپولا-گارچ مطالعه موردی: بازار طلا، ارز و سهام" . کنفرانس بین المللی مدیریت و مهندسی صنایع.
Bystrom, H., (2005). Extreme value theory and extremely large electricity price changes. International Review of Economics and Finance 14, 41–55.
Danielsson, J. & de Vries, C. G. (1997). Tail index and quantile estimation with very high frequency data. Journal of empirical Finance, 4(2), 241-257.
Dowd, K. (2005).Measuring market risk, Third Edistion, Wiley. Com.
Duffie, D., & Pan, J. (1997). An overview of value at risk. Journal of Derivatives, 4, 7- 49.
Gencay, R. & Selcuk, F. (2004). Extreme value theory and Value-at-Risk: Relative performance in emerging markets. International Journal of Forecasting, 20(2), 287-303.
Gumbel, E. J. (1960). Bivariate exponential distributions. Journal of American Statis-tical Association, 55, 698–707.
Huang, J.-J., Lee, K.-J., Liang, H., & Lin, W.-F. (2009). Estimating value at risk of portfolioby conditional copula-GARCH method. Insurance: Mathematics and Economics,45, 315–324.
Karmakar, M.(2017). Dependence structure and portfolio risk in Indian foreign exchangemarket: A GARCH-EVT-Copula approach. The Quarterly Review of Economics and Finance. QUAECO-1003; No. of Pages 17.
McNeil, A.J., Frey, R., (2000). Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach. Journal of Empirical Finance 7, 271–300.
Patton, A. J. (2006). Modelling asymmetric exchange rate dependence. InternationalEconomic Review, 47(2), 527–556.
Sahamkhadam,M., Stephan, A. (2018). Portfolio optimization based on GARCH-EVT-Copula forecasting models. International Journal of Forecasting, 2018, vol. 34, issue 3, 497-506.
Singh,K., Allen, D.E., Powell, , R. J. (2011). Value at Risk Estimation Using Extreme Value Theory, 19th International Congress on Modelling and Simulation, Perth, Australia, 12–16 December 2011.
Soltane H., Karaa A., Bellalah M., 2012 Conditional VaR using GARCH-EVT approach:Forecasting Volatility in Tunisian Financial Market, Journal of Computational & modeling, vol.2, no.2.
Wang, Z.-R., Chen, X.-H., Jin, Y.-B., & Zhou, Y.-B. (2010). Estimating risk of foreignexchange portfolio: Using VaR and CVaR based on GARCH-EVT-Copula model.Physica A, 389, 4918–4928.
Wang, K., Chen, Y. -H., & Huang, S. -W. (2011). The dynamic dependence between the Chinese market and other international stock returns: A time-varyingcopula approach. International Review of Economics and Finance, 21, 654–664.
_||_Pouyanfar, A., and Seyed Mousavi, H. (2015). "Estimating value at risk of intraday data with the EVT-COPULA method". Journal of Risk Modeling and Financial Engineering, Volume 1, Number 2, 144-129.
Raghofer, H., and Ajurlo, N. (2015). "Estimating the value at risk of a sample bank's currency portfolio with the GARCH-EVT-COPULA method". Iranian Economic Research Quarterly, No. 67, 113-141.
Sajjad, R., Hedayati, Sh., and Hedayati, Sh. (2013). "Estimating value at risk using Ferin's value theory in Tehran stock exchange". Investment Science Research Quarterly, No. 9, 155-133.
Suri, A., "Econometrics Volume II", 4th edition, Farghazih Publications, 2014.
Sadeghi, H., and Behbodi, S. (2015). "Estimating value at risk using Frein's value theory (a study on exchange rate)". Scientific Research Quarterly of Asset Management and Financing, No. 2, 77-94.
Abdo Tabrizi, h. and Radpour, M. (1388). "Measurement and management of market risk" Conscious publications and leading publications.
Fallah Talab, H., and Azizi, M. (2014) "The application of Frein value theory in predicting value at risk". Scientific Research Quarterly Journal of Capital Investment, No. 12, 159-179.
Falahpour, S., Rai, R., Mirzamohammadi, S., and Seyed Hasheminejad, M. (2016). "Measuring value under conditional risk using the combination of FIGARCH model and Frein's value theory". Investing Science Quarterly Journal, No. 23, 259-281.
Keshavarz Haddad, G., and Hirani, M. (2013). "Estimating value at risk with dependence structure between financial returns: an approach based on copula functions". Journal of Economic Research, No. 4, 869-902.
Nasiri, F., Hassanlou, Kh., and Seyed Ebrahimi, B. (2013). "Estimating the value at risk of the investment portfolio using Copula-Garch models, a case study: gold, currency and stock markets". International Conference on Management and Industrial Engineering.
Bystrom, H., (2005). Extreme value theory and extremely large electricity price changes. International Review of Economics and Finance 14, 41–55.
Danielsson, J. & de Vries, C. G. (1997). Tail index and quantile estimation with very high frequency data. Journal of empirical finance, 4(2), 241-257.
Dowd, K. (2005).Measuring market risk, Third Edition, Wiley. Com.
Duffie, D., & Pan, J. (1997). An overview of value at risk. Journal of Derivatives, 4, 7-49.
Gencay, R. & Selcuk, F. (2004). Extreme value theory and Value-at-Risk: Relative performance in emerging markets. International Journal of Forecasting, 20(2), 287-303.
Gumbel, E. J. (1960). Bivariate exponential distributions. Journal of American Statistical Association, 55, 698–707.
Huang, J.-J., Lee, K.-J., Liang, H., & Lin, W.-F. (2009). Estimating value at risk of portfolio by conditional copula-GARCH method. Insurance: Mathematics and Economics, 45, 315–324.
Karmakar, M. (2017). Dependence structure and portfolio risk in Indian foreign exchange market: A GARCH-EVT-Copula approach. The Quarterly Review of Economics and Finance. QUAECO-1003; No. of Pages 17.
McNeil, A.J., Frey, R., (2000). Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach. Journal of Empirical Finance 7, 271–300.
Patton, A. J. (2006). Modeling asymmetric exchange rate dependence. International Economic Review, 47(2), 527–556.
Sahamkhadam, M., Stephan, A. (2018). Portfolio optimization based on GARCH-EVT-Copula forecasting models. International Journal of Forecasting, 2018, vol. 34, issue 3, 497-506.
Singh, K., Allen, D. E., Powell, , R. J. (2011). Value at Risk Estimation Using Extreme Value Theory, 19th International Congress on Modeling and Simulation, Perth, Australia, December 12-16, 2011.
Soltane H., Karaa A., Bellalah M., 2012 Conditional VaR using GARCH-EVT approach: Forecasting Volatility in Tunisian Financial Market, Journal of Computational & modeling, vol.2, no.2.
Wang, Z.-R., Chen, X.-H., Jin, Y.-B., & Zhou, Y.-B. (2010). Estimating risk of foreign exchange portfolio: Using VaR and CVaR based on GARCH-EVT-Copula model. Physica A, 389, 4918–4928.
Wang, K., Chen, Y.-H., & Huang, S.-W. (2011). The dynamic dependence between the Chinese market and other international stock returns: A time-varying copula approach. International Review of Economics and Finance, 21, 654–664.
