Abstract
In this paper, the portfolio optimization based on CV aR is performed using the dynamic copula model for financial data. Determining thebest model of dependency between financial data has an important role intaking appropriate investment decisions. Due to the financial data is alwaysağected by the *uctuations of the economic factors, the dynamic model washandled. On the other hand change point detection is also important for investment decisions. So this study presents an application of dynamic copulamodel with change point approach. We take the currency data (USD andEUR) from Turkish Central Bank to construct a portfolio. This study consists of two stages. In the first stage, the marginal distributions and copulamodels of currency data are defined for full sample, and the portfolio optimization based on CV aR is performed. In the second stage, the change periodsof copula models are determined using binary segmentation method, and the portfolio optimization based on CV aR is performed for each period
Highlights
Dynamic copula modeling is commonly used in ...nance and risk management
The portfolio optimization based on Conditional Value at Risk (CV aR) is performed using the dynamic copula model for ...nancial data
This study presents an application of dynamic copula model with change point approach
Summary
Dynamic copula modeling is commonly used in ...nance and risk management. This approach is important in practice when ...nancial data don’t have normal distributions and have high volatility by time-varying methods. Change point, Conditional Value at Risk (CV aR), portfolio optimization. We applied portfolio optimization based on risk measures such as the Value at Risk (V aR) and the Conditional Value at Risk (CV aR) for assets modeled with dynamic copula at each speci...ed period by using the change point approach. Dias and Embrechts [19], [20] and Guegan and Zhang [21] have studied dynamic copula models in ...nance and insurance by taking into account the change point approach. We give an application of portfolio optimization based on the change point detection approach that provides better portfolio selection and investment decisions when dependent ...nancial data are modeled with the dynamic copula.
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