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 language | English |
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Pages (from-to) | 268-273 |
Number of pages | 6 |
Journal | Engineering Letters |
Volume | 24 |
Issue number | 3 |
State | Published - 2016 |
Keywords
- Copula
- GARCH
- Systemic risk
- Time series
- Value-at-risk