The Grouped t-Copula with an Application to Credit Risk

7 Pages Posted: 13 Mar 2009

See all articles by Stéphane Daul

Stéphane Daul

RiskMetrics Group; Pictet Asset Management

Enrico G. De Giorgi

University of St. Gallen - SEPS: Economics and Political Sciences

Filip Lindskog

affiliation not provided to SSRN

Alexander McNeil

ETH Zürich - Department of Mathematics

Date Written: March 13, 2003

Abstract

We describe a model that takes into account the tail dependence present in a large set of historical risk factor data using the modern concept of copulas. We extend the popular t-copula to obtain a new grouped t-copula which describes more accurately the dependence among risk factors of different classes. We explain how to estimate the parameters of the grouped t-copula and apply the method to a problem in credit risk management with a large number of risk factors. We measure the downside risk over one month for an internationally diversified credit portfolio and we observe that the new model gives different results to the t-copula and seems better able to capture the risk in a large set of risk factors.

Keywords: risk management, credit risk, copula, estimation

JEL Classification: C00, C13

Suggested Citation

Daul, Stéphane and Daul, Stéphane and De Giorgi, Enrico G. and Lindskog, Filip and McNeil, Alexander, The Grouped t-Copula with an Application to Credit Risk (March 13, 2003). Available at SSRN: https://ssrn.com/abstract=1358956 or http://dx.doi.org/10.2139/ssrn.1358956

Stéphane Daul

Pictet Asset Management ( email )

Geneva
Switzerland

RiskMetrics Group ( email )

1 Chase Manhattan Plaza
New York, NY
United States

Enrico G. De Giorgi (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

Department of Economics
Bodanstrasse 6
CH-9000 St. Gallen
Switzerland
+41712242430 (Phone)

Filip Lindskog

affiliation not provided to SSRN

Alexander McNeil

ETH Zürich - Department of Mathematics ( email )

ETH Zentrum HG-F 42.1
Raemistr. 101
CH-8092 Zurich, 8092
Switzerland
+41 1 632 61 62 (Phone)
+41 1 632 10 85 (Fax)

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