1 Business School Discipline of Finance Discussion Paper 2014 - 004 “ The Four Horsemen : Heavy - tails , Negative Skew , Volatility Clustering , Asymmetric Dependence ”
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چکیده
ABSRACT In the wake of the worst financial crisis since the Great Depression, there has been a proliferation of new risk management and portfolio construction approaches. These approaches endeavour to capture the " stylised facts " of financial asset returns: heavy tails, negative skew, volatility clustering and asymmetric dependence. Many approaches capture two or three characteristics, while capturing all four in a scalable framework remains elusive. We propose a novel approach that captures all four stylised characteristics using EGARCH, the skewed-t copula and extreme-value theory. Using eight data sets we show the approach is superior to eight benchmark models in both a VaR forecasting and a dynamic portfolio rebalancing framework. The approach generates significant economic value relative to the 1/N rule and the Gaussian approach. We also find that accounting for asymmetric dependence leads to a consistent improvement in VaR prediction and out-of sample portfolio performance including lower drawdowns.
منابع مشابه
Business School Discipline of Finance Discussion Paper 2015 - 002 “ A Simple Overnight / Intraday Volatility Estimator ”
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تاریخ انتشار 2014