FX Portfolio Optimization Risk Management Using Copula-VaR Model
LI Peng-ju
Abstract：With the acceleration of RMB’s globalization, it is particularly important to research the risks and the interdependence of the international foreign exchange market. Copulas can be used to decompose multivariate joint distribution into marginal distribution and correlation structure. In this paper we model the actual and joint distribution of daily exchange rate returns offive major currencies,i.e. USD, JPY, EUR, GBP and HKD against RMB mainly based on AR(2)-GARCH(1,1)-t model. The advantage is applied to compute the VaR of a portfolio by Normal and Student’t Copula function.Furthermore,a new model for portfolio choice based on copulas is proposed by Monte Carlo simulation,and empirical analysis is operated in the hope of helping make a strategic decision in the foreign exchange market.
Keywords：Copula functionforeign exchange marketportfoliovalue at riskMonte Carlo simulation
Publication Date：2016-01-01
Online Publishing Date：2025-08-15(First online date of this platform, not the publication date of the document)
Pages：6( 40-45 )