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Copula Based Volatility Models and Extreme Value Theory for Portfolio Simulation with an Application to Asian Stock Markets

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Causal Inference in Econometrics

Part of the book series: Studies in Computational Intelligence ((SCI,volume 622))

Abstract

Many empirical works used risk modeling under the assumption of Gaussian distribution to investigate the market risk. The Gaussian assumption may not be appropriate for risk estimation techniques in some situations. In this study, we used the extreme value theory (EVT) to examine more precisely the tail distribution of market risk and incorporate high dimensional copulas to explore the dependence between stock markets. We gathered data of stock markets from Asean countries (Thailand, Singapore, Malaysia, Indonesia and the Philippines) to simulate the portfolio analysis during and post subprime crisis. The results found that D-vine copula GARCH-EVT model can simulate the efficient frontier of portfolios greater than other models. Furthermore, we also found the positive dependence for the overall markets.

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Acknowledgments

The authors are thankful to Dr. Supanika Leurcharusmee and Dr. Kittawit Autchariyapanitkul for reviewing the manuscript. First author was supported from Prince of Songkla University-Ph.D. Scholarship.

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Authors and Affiliations

  1. Faculty of Economics, Chiang Mai University, Chiang Mai, 50200, Thailand

    Apiwat Ayusuk & Songsak Sriboonchitta

  2. Faculty of Liberal Arts and Management Sciences, Department of Business Economics, Prince of Songkla University, Suratthani, 84000, Thailand

    Apiwat Ayusuk

Authors
  1. Apiwat Ayusuk
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  2. Songsak Sriboonchitta
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Correspondence to Apiwat Ayusuk .

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Editors and Affiliations

  1. School of Knowledge Science, Japan Advanced Ins. of Sci. & Tech, Ishikawa, Japan

    Van-Nam Huynh

  2. Department of Computer Science, University of Texas at El Paso, El Paso, Texas, USA

    Vladik Kreinovich

  3. Faculty of Economics, Chiang Mai University, Chiangmai, Thailand

    Songsak Sriboonchitta

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Ayusuk, A., Sriboonchitta, S. (2016). Copula Based Volatility Models and Extreme Value Theory for Portfolio Simulation with an Application to Asian Stock Markets. In: Huynh, VN., Kreinovich, V., Sriboonchitta, S. (eds) Causal Inference in Econometrics. Studies in Computational Intelligence, vol 622. Springer, Cham. https://doi.org/10.1007/978-3-319-27284-9_17

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  • DOI: https://doi.org/10.1007/978-3-319-27284-9_17

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-27283-2

  • Online ISBN: 978-3-319-27284-9

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