Intraday Value at Risk Estimation with EVT-COPULA Approach

Document Type : applied

Authors

1 Associate Prof., Finance Department, Khatam University, Tehran, Iran

2 MSc. Financial Engineering, Khatam University, Tehran, Iran

Abstract

Value at Risk is the most general risk measure in banks and financial institutions that lies in the tail of the P&L distribution. To measure VaR of a portfolio of assets, correlation of the assets must be considered. Thus, to properly measure VaR one needs an approach to calculate joint distribution of returns series and also because VaR lies in the tail of P&L distribution, a framework to model tail of the distribution is necessary. Thus, in this research with combining EVT; to model tail of the P&L distribution, and Copula, to model joint distribution and VaR of three most liquid stock in petrochemical industry of Tehran Stock Exchange is calculated and then compared with other approaches. To model extreme events, we use POT approach and we use elliptical copulas to find joint distribution of series and calculating VaR. Results shows the proposed model performs very well compared to other models in calculating VaR of the investigated time period.
JEL: G23, G32
How to cite this paper: Mousavi, S. H., & Pouyanfar, A. (2016). Intraday Value at Risk Estimation with EVT-Copula Approach. Quarterly Journal of Risk Modeling and Financial Engineering, 1(2), 129–144. (In Persian)

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Journal of Risk modeling and Financial Engineering
Volume 1, Issue 2 - Serial Number 2
December 2016
Pages 129-144

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