Analysis of systemic risk: A vine copula-based ARMA-GARCH model

Kuan Heng Chen, Khaldoun Khashanah

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

In this paper, a model for analyzing each U.S. Equity sector’s risk contribution (VaR ratio), the ratio of the Value-at-Risk of a sector to the Value-at-Risk of the system (S&P 500 Index), with vine Copula-based ARMA-GARCH (1, 1) modeling is presented. Vine copula modeling not only has the advantage of extending to higher dimensions easily, but also provides a more flexible measure to capture an asymmetric dependence among assets. We investigate systemic risk in 10 S&P 500 sector indices in the U.S. stock market by forecasting one-day ahead VaR and one-day ahead VaR ratio during the 2008 financial subprime crisis. Our evidence reveals vine Copula-based ARMA-GARCH (1, 1) is the appropriate model to forecast and analyze systemic risk.

Original languageEnglish
Pages (from-to)268-273
Number of pages6
JournalEngineering Letters
Volume24
Issue number3
StatePublished - 2016

Keywords

  • Copula
  • GARCH
  • Systemic risk
  • Time series
  • Value-at-risk

Fingerprint

Dive into the research topics of 'Analysis of systemic risk: A vine copula-based ARMA-GARCH model'. Together they form a unique fingerprint.

Cite this