Score-driven copula models for portfolios of two risky assets

Astrid Ayala and Szabolcs Blazsek

The European Journal of Finance, 2018, vol. 24, issue 18, 1861-1884

Abstract: The precise measurement of the association between asset returns is important for financial investors and risk managers. In this paper, we focus on a recent class of association models: Dynamic Conditional Score (DCS) copula models. Our contributions are the following: (i) We compare the statistical performance of several DCS copulas for several portfolios. We study the Clayton, rotated Clayton, Frank, Gaussian, Gumbel, rotated Gumbel, Plackett and Student's t copulas. We find that the DCS model with the Student's t copula is the most parsimonious model. (ii) We demonstrate that the copula score function discounts extreme observations. (iii) We jointly estimate the marginal distributions and the copula, by using the Maximum Likelihood method. We use DCS models for mean, volatility and association of asset returns. (iv) We estimate robust DCS copula models, for which the probability of a zero return observation is not necessarily zero. (v) We compare different patterns of association in different regions of the distribution for different DCS copulas, by using density contour plots and Monte Carlo (MC) experiments. (vi) We undertake a portfolio performance study with the estimation and backtesting of MC Value-at-Risk for the DCS model with the Student's t copula.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2018.1464488 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1861-1884

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2018.1464488

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().