Copula Analysis of Risk: A Multivariate Risk Analysis for VaR and CoVaR using Copulas and DCC-GARCH

TL;DR

This paper develops a multivariate risk analysis framework for VaR and CoVaR using copulas and DCC-GARCH models, comparing different copula families to evaluate their effectiveness on financial data.

Contribution

It introduces a comprehensive approach combining copulas with DCC-GARCH for multivariate risk assessment, including a goodness-of-fit comparison of copula families.

Findings

Certain copula families outperform others in fit quality.

The integrated approach effectively captures dependencies in financial risks.

Method provides a robust tool for multivariate risk measurement.

Abstract

A multivariate risk analysis for VaR and CVaR using different copula families is performed on historical financial time series fitted with DCC-GARCH models. A theoretical background is provided alongside a comparison of goodness-of-fit across different copula families to estimate the validity and effectiveness of approaches discussed.