Measuring systemic risk: Vine copula- GARCH Model

Kuan Heng Chen, Khaldoun Khashanah

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

2 Scopus citations

Abstract

We analyze each U.S. Equity sector's risk contribution AVaR, the difference between the Value-At-Risk of a sector and the Value-At-Risk of the system (S&P 500 Index), by using vine Copula-based ARMA-GARCH (1, 1) modeling. 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. sl ock market by forecasting one-day ahead Copula VaR and Copula AVaR 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
Title of host publicationWCECS 2015 - World Congress on Engineering and Computer Science 2015
EditorsCraig Douglas, Jon Burgstone, Warren S. Grundfest, Jon Burgstone, Craig Douglas, S. I. Ao
Pages884-889
Number of pages6
ISBN (Electronic)9789881404725
StatePublished - 2015
Event2015 World Congress on Engineering and Computer Science, WCECS 2015 - San Francisco, United States
Duration: 21 Oct 201523 Oct 2015

Publication series

NameLecture Notes in Engineering and Computer Science
Volume2220
ISSN (Print)2078-0958

Conference

Conference2015 World Congress on Engineering and Computer Science, WCECS 2015
Country/TerritoryUnited States
CitySan Francisco
Period21/10/1523/10/15

Keywords

  • Copula
  • GARCH
  • Systemic risk
  • Time series
  • VaR

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