Dependence modelling of the joint extremes in a portfolio using Archimedean copulas: application to MSCI indices

Dominique Guegan () and Sophie A. Ladoucette ()
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Dominique Guegan: IDHE - Institutions et Dynamiques Historiques de l'Economie - ENS Cachan - École normale supérieure - Cachan - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Sophie A. Ladoucette: IDHE - Institutions et Dynamiques Historiques de l'Economie - ENS Cachan - École normale supérieure - Cachan - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: Using Archimedean copulas, we investigate the dependence structure existing between several series of financial assets log-returns that come from different markets. These series are considered as components of a portfolio and they are investigated on a long period including high shocks. To perform such a study, we model the tail of their joint distribution function using a dependence measure (Kendall's tau) and its relationship with the class of Archimedean copulas. Then, we define two different diagnostics to decide which copula best fits the tail of the empirical joint distribution. This approach permits us to understand the evolution of the interdependence of more than two markets in the tails, that is when extremal events corresponding to shocks induce some turmoil in the evolution of these markets.

Keywords: portfolio; multivariate extremes; Kendall's tau; estimation theory; Archimedean copulas; portefeuille; théorie de l'estimation; Copules archimédéennes; estimation Tau de Kendall; extrêmes multivariés (search for similar items in EconPapers)
Date: 2005-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00189214v1
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Published in 2005

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Working Paper: Dependence modelling of the joint extremes in a portfolio using Archimedean copulas: application to MSCI indices (2005)
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