A Copula Approach to Value-at-Risk Estimation for Fixed-Income Portfolios

This paper introduces a multivariate copula approach to Value-at-Risk estimation for fixed income portfolios.

Author(s):

Lionel Martellini

Professor of Finance and Scientific Director of the EDHEC Risk and Asset Management Research Centre

Jean-Christophe Meyfredi

Professor of Finance and Head of the FinanceDepartment at EDHEC Business School

Using a parsimonious model to extract time-varying parameters used as proxies for factors affecting the shape of the yield curve, and a Student copula to model the dependence structure of these factors, we are able to generate VaR estimates that strongly dominate standard VaR estimates in formal out-of-sample tests.

Type: Working paper
Date: le 01/10/2007
Research Cluster : Finance

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