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Risk Factors, Copula Dependence and Risk Sensitivity of a Large Portfolio

Catherine Bruneau (), Alexis Flageollet () and Zhun Peng ()
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Catherine Bruneau: University Paris I Pantheon-Sorbonne and CES
Alexis Flageollet: Natixis Asset Management
Zhun Peng: University of Evry and EPEE

No 15-03, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper we propose a flexible tool to estimate the risk sensitivity of a high- dimensional portfolio composed of different classes of assets, especially in extreme risk circumstances. We build a so-called Cvine Risk Factors Model (CRFM), which is a non-linear version of a risk factor model in a copula framework. Our tool allows us to decompose the risk of any asset and any portfolio into specific risk directions depending on the context. As an application, we compare the sensitivity of different types of portfolios to extreme risks. We also give an example of a view- type analysis as usually performed by portfolio managers who examine what their portfolio becomes under specific circumstances: here we examine the case of a low inflation context. These analyses allow us to detect changes in the diversification opportunities over time.

Keywords: Regular vine copula; Factorial model; Extreme Risks; Risk Management; Portfolio Management; Diversification (search for similar items in EconPapers)
JEL-codes: G11 G17 G32 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2015
New Economics Papers: this item is included in nep-rmg
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