The Application Of Time-Varying Copula In The Security Market Risk Measurement

With the implementation of the strategy of financial market innovation drive,more and more enterprises apply for listing to increase vitality for capital market.It also exacerbates the variability and uncertainty in financial markets.Financial risk management and Portfolio of assets have become increasingly focused problems for investors,and financial risk prevention has become increasingly important.People need effective methods to study the financial asset portfolio investment proportion and risk,allowing investors to reduce portfolio risk and to increase income.Therefore,using time-varying copulas and MCMC algorithm to study financial asset portfolio risk has crucial theories value and actual significance.The paper introduced copulas to study the correlation between financial variables,it can be a very good description of financial variables between linear and nonlinear correlation.MCMC algorithm is applied to solve the portfolio proportion.It is more practical that it doesn’t need to make some related hypothesis,and it can be reasonable solving portfolio risk.Due to the financial data with time-varying characteristics,the relations between financial variables change over time.On the basis of static copulas,time-varying copulas are used to study the dependency of financial assets which change over time and it can more accurately measure the risk of portfolio.The paper applied static copulas and time-varying copulas to analyze the dependency between the main board and gem market.Choosing the optimal copulas with a portfolio proportion solved by MCMC algorithm to measure the Value at risk.Analyzing and comparing the dependence which described by static and time-varying copulas between the main board and gem market provides a way which has certain reference value.There are two innovations:1,using a variety of time-varying copulas to describe the dependence between financial assets,and comparing the static and time-varying copulas.2,using the optimal copulas combined with a portfolio proportion solved by MCMC algorithm to measure the Value at risk.Results show that the time-varying copulas can be more practical to describe the dependence between the financial market variables.Comparing to separate use copulas or MCMC algorithm,it can be accurate quantitative investment analysis.