Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach
Risk estimation is of great importance in financial risk management. In this study, the risk estimation of the exchange rate portfolio is performed via the stochastic copula approach. This model-based latent process has a parameter that changes over time and thus can model the dependency structure b...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2022-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2022/8467691 |
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| _version_ | 1849693873564024832 |
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| author | Erol Terzi Emre Yildirim Bünyamin Saribacak Mehmet Ali Cengiz |
| author_facet | Erol Terzi Emre Yildirim Bünyamin Saribacak Mehmet Ali Cengiz |
| author_sort | Erol Terzi |
| collection | DOAJ |
| description | Risk estimation is of great importance in financial risk management. In this study, the risk estimation of the exchange rate portfolio is performed via the stochastic copula approach. This model-based latent process has a parameter that changes over time and thus can model the dependency structure between variables in a comprehensive and dynamic way. First, the marginals of the returns are handled with ARMA-GARCH-type models. Then, the dependency between variables is modeled via the stochastic copula approach. Finally, risk estimates are carried out at 95% and 99% confidence level for the foreign exchange portfolios. It is found that the proposed risk estimation model based on the stochastic copula approach outperforms both classical methods and static copula models. |
| format | Article |
| id | doaj-art-4f9e6c79f54040f2a7645fe47cf730ff |
| institution | DOAJ |
| issn | 1607-887X |
| language | English |
| publishDate | 2022-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-4f9e6c79f54040f2a7645fe47cf730ff2025-08-20T03:20:16ZengWileyDiscrete Dynamics in Nature and Society1607-887X2022-01-01202210.1155/2022/8467691Risk Estimation in Exchange Rate Markets Based on Stochastic Copula ApproachErol Terzi0Emre Yildirim1Bünyamin Saribacak2Mehmet Ali Cengiz3Department of StatisticsDepartment of StatisticsDepartment of Computer and Instructional TechnologiesDepartment of StatisticsRisk estimation is of great importance in financial risk management. In this study, the risk estimation of the exchange rate portfolio is performed via the stochastic copula approach. This model-based latent process has a parameter that changes over time and thus can model the dependency structure between variables in a comprehensive and dynamic way. First, the marginals of the returns are handled with ARMA-GARCH-type models. Then, the dependency between variables is modeled via the stochastic copula approach. Finally, risk estimates are carried out at 95% and 99% confidence level for the foreign exchange portfolios. It is found that the proposed risk estimation model based on the stochastic copula approach outperforms both classical methods and static copula models.http://dx.doi.org/10.1155/2022/8467691 |
| spellingShingle | Erol Terzi Emre Yildirim Bünyamin Saribacak Mehmet Ali Cengiz Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach Discrete Dynamics in Nature and Society |
| title | Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach |
| title_full | Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach |
| title_fullStr | Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach |
| title_full_unstemmed | Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach |
| title_short | Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach |
| title_sort | risk estimation in exchange rate markets based on stochastic copula approach |
| url | http://dx.doi.org/10.1155/2022/8467691 |
| work_keys_str_mv | AT erolterzi riskestimationinexchangeratemarketsbasedonstochasticcopulaapproach AT emreyildirim riskestimationinexchangeratemarketsbasedonstochasticcopulaapproach AT bunyaminsaribacak riskestimationinexchangeratemarketsbasedonstochasticcopulaapproach AT mehmetalicengiz riskestimationinexchangeratemarketsbasedonstochasticcopulaapproach |