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Statistics & Risk Modeling

with Applications in Finance and Insurance

Editor-in-Chief: Stelzer, Robert

Cite Score 2018: 0.85

SCImago Journal Rank (SJR) 2018: 0.354
Source Normalized Impact per Paper (SNIP) 2018: 0.604

Mathematical Citation Quotient (MCQ) 2017: 0.32

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Volume 30, Issue 4


Risk management with high-dimensional vine copulas: An analysis of the Euro Stoxx 50

Eike Christain Brechmann / Claudia Czado
Published Online: 2013-12-10 | DOI: https://doi.org/10.1524/strm.2013.2002


The demand for an accurate financial risk management involving larger numbers of assets is strong not only in view of the financial crisis of 2007–2009. Especially dependencies among assets have not been captured adequately. While standard multivariate copulas have added some flexibility, this flexibility is insufficient in higher dimensional applications. Vine copulas can fill this gap by benefiting from the rich class of existing bivariate parametric copula families. Exploiting this in combination with GARCH models for the margins, we develop a regular vine copula based factor model for asset returns, the Regular Vine Market Sector model, which is motivated by the classical CAPM and shown to be superior to the CAVA model proposed by Heinen and Valdesogo (2009). The model can also be used to separate the systematic and idiosyncratic risk of specific stocks, and we explicitly discuss how vine copula models can be employed for active and passive portfolio management. In particular, Value-at-Risk forecasting and asset allocation are treated in detail. All developed models and methods are used to analyze the Euro Stoxx 50 index, a major market indicator for the Eurozone. Relevant benchmark models such as the popular DCC model and the common Student's t copula are taken into account.

Keywords: Vines; factor model; Value-at-Risk; portfolio management

About the article


Received: 2012-12-02

Published Online: 2013-12-10

Published in Print: 2013-12-01

Citation Information: Statistics & Risk Modeling, Volume 30, Issue 4, Pages 307–342, ISSN (Online) 2196-7040, ISSN (Print) 2193-1402, DOI: https://doi.org/10.1524/strm.2013.2002.

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