Application Research Of Cupula Method In Portfolio Risk Measurement

The existence of financial market risk has certain objectivity, it is impossible to eradicate it, so financial market risk analysis has been the hot topic at home and abroad. And the correlation studies on asset returns at risk analysis are particularly important. Copula Function is a powerful tool as a way to deal with the correlation structure between variables and it has gotten more and more concerns from experts and has been used in financial risk research field, nonetheless, choosing the proper Copula Function is still one of the problems that the researchers have to solve. This paper is devoted to exploring this issue. In theoretical aspects, the research starts from introducing Copula methods and then presents several individual Copula Functions and mixed Copula Functions’characteristics of describing correlations.It gives us two methods for choosing the appropriate Copula Function. Meanwhile, due to the weaknesses of VaR, it brings in CVaR for the sake of dual monitoring risk. In empirical aspects, this paper is based on Shanghai stock index and Shenzhen index component portfolio for research object, and takes the 237 groups closing price from Jan. 1st, 2010 to Dec. 31st, 2010 as the valid data. It combines the preferred Copula Function with Monte Carlo simulation technique so as to calculate the VaR and CVaR portfolio. By comparing the empirical results, it can draw conclusion that the two kinds of Copula Function selection methods are feasible, indeed using the preferred Copula Function to calculate the VaR and CVaR portfolio makes risk forecasting more accurate, also for Copula applications in portfolio risk research provides a new idea. With Copula method measuring the risk of portfolio, the selection of Copula has influence on it and the influence can not be ignored. Thus it indicates that this paper has important realistic significance. At last, this paper gives summary on Copula methods in the application of risk research, and puts forward some problems for our further study.