Application of vine copulas to credit portfolio risk modeling

Artikel

In this paper, we demonstrate the superiority of vine copulas over conventional copulas when modeling the dependence structure of a credit portfolio. We show statistical and economic implications of replacing conventional copulas by vine copulas for a subportfolio of the Euro Stoxx 50 and the S&P 500 companies, respectively. Our study includes D-vines and R-vines where the bivariate building blocks are chosen from the Gaussian, the t and the Clayton family. Our findings are (i) the conventional Gauss copula is deficient in modeling the dependence structure of a credit portfolio and economic capital is seriously underestimated; (ii) D-vine structures offer a better statistical fit to the data than classical copulas, but underestimate economic capital compared to R-vines; (iii) when mixing different copula families in an R-vine structure, the best statistical fit to the data can be achieved which corresponds to the most reliable estimate for economic capital.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 9 ; Year: 2016 ; Issue: 2 ; Pages: 1-15 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: pair-copula constructions ; vine copulas ; Archimedean and elliptical copulas ; credit portfolio risk ; economic capital ; R-vine ; D-vine

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Geidosch, Marco ; Fischer, Matthias
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2016

Further information

• DOI: doi:10.3390/jrfm9020004
• Handle: http://hdl.handle.net/10419/178571
• Last update: 10.03.2025, 11:44 AM CET