Study on the Market Risk Measurement of the Style Portfolios in Stock Markets Based on EVT-t-Copula Model

Yuhong Zhou, Wenwei Guo

Abstract


For the presence of non-normal distribution characteristics in the financial assets returns, the model of AR(1)-GJR(1,1) is used to characterize the marginal distribution of the style assets in China stock market. The Copula function is introduced to analyze the dependency structure between the six style assets, combined with the marginal distributed residual sequences. And the joint return distribution of the style portfolios is simulated, combined with extreme value theory and Monte Carlo simulation method. Then the market risks (VaR and CVaR) of the style portfolios in China stock markets are obtained. The results of the study show that the generalized Pareto distribution Model can well fit the non-normal distribution characteristics such as peak and fat tail in the style assets returns.

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International Journal of Online and Biomedical Engineering (iJOE) – eISSN: 2626-8493
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