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Mathematical Problems in Engineering
Volume 2015, Article ID 286014, 9 pages
http://dx.doi.org/10.1155/2015/286014
Research Article

Multivariate Time-Varying Copula GARCH Model and Its Application in the Financial Market Risk Measurement

1School of Economics and Business Administration, Chongqing University, Chongqing 400030, China
2School of Mathematics and Statistics, Chongqing University, Chongqing 400030, China

Received 23 March 2015; Accepted 11 May 2015

Academic Editor: Ruihua Liu

Copyright © 2015 Qi-an Chen et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Taking full advantage of the strengths of - distribution, Copula function, and GARCH model in depicting the return distribution of financial asset, we construct the multivariate time-varying - Copula GARCH model which can comprehensively describe “asymmetric, leptokurtic, and heavy-tail” characteristics, the time-varying volatility characteristics, and the extreme-tail dependence characteristics of financial asset return. Based on the conditional maximum likelihood estimator and IFM method, we propose the estimation algorithm of model parameters. Using the quantile function and simulation method, we propose the calculation algorithm of VaR on the basis of this model. To apply this model on studying a real financial market risk, we select the SSCI (China), HSI (Hong Kong, China), TAIEX (Taiwan, China), and SP500 (USA) from January 3, 2000, to June 18, 2010, as the samples to estimate the model parameters and to measure the VaRs of various index risk portfolios under different confidence levels empirically. The results of the application example are in line with the actual situation and the risk diversification theory of portfolio. To a certain extent, these results also justify the feasibility and effectiveness of the multivariate time-varying - Copula GARCH model in depicting the return distribution of financial assets.