Risk Estimation in Exchange Rate Markets Based on Stochastic Copula Approach

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Terzi E., Yıldırım E., Sarıbacak B., Cengiz M. A.

Discrete Dynamics in Nature and Society, cilt.2022, 2022 (SCI-Expanded) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 2022
  • Basım Tarihi: 2022
  • Doi Numarası: 10.1155/2022/8467691
  • Dergi Adı: Discrete Dynamics in Nature and Society
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Academic Search Premier, Aerospace Database, Applied Science & Technology Source, Communication Abstracts, Computer & Applied Sciences, INSPEC, Metadex, zbMATH, Directory of Open Access Journals, Civil Engineering Abstracts
  • Ondokuz Mayıs Üniversitesi Adresli: Evet

Özet

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.