Value-at-Risk and Expected Shortfall in Cryptocurrencies' Portfolio: A Vine Copula-based Approach

28 Pages Posted: 24 Aug 2019 Last revised: 18 Nov 2019

See all articles by Carlos Trucíos

Carlos Trucíos

University of Campinas (UNICAMP) - Department of Statistics

Aviral Kumar Tiwari

Indian Institute of Management Bodh Gaya

Faisal Alqahtani

University of Auckland; Taibah University

Date Written: November 16, 2019

Abstract

Risk management is an important and helpful process for investors, hedge funds, traders and market makers. One of its key points is the appropriate estimation of risk measures which can improve the investment decisions and trading strategies. The high volatility of cryptocurrencies turns them a really risky investment and consequently, appropriate risk measures estimation is extremely necessary.

In this paper, we deal with the estimation of two widely-used risk measures such as Value-at-Risk and Expected Shortfall in a cryptocurrency context. To face the presence of outliers and the correlation between cryptocurrencies, we propose a methodology based on vine copulas and robust volatility models. Our procedure is illustrated in a seven-dimensional equal-weight cryptocurrency portfolio and displays good performance.

Keywords: Cryptocurrency, GAS, GARCH, Pair-copula, Risk Measures, Volatility

JEL Classification: C32, C51, C53, G17, G32

Suggested Citation

Trucíos Maza, Carlos César and Tiwari, Aviral Kumar and Alqahtani, Faisal, Value-at-Risk and Expected Shortfall in Cryptocurrencies' Portfolio: A Vine Copula-based Approach (November 16, 2019). Available at SSRN: https://ssrn.com/abstract=3441892 or http://dx.doi.org/10.2139/ssrn.3441892

Carlos César Trucíos Maza (Contact Author)

University of Campinas (UNICAMP) - Department of Statistics ( email )

Campinas, São Paulo, 13083-859
Brazil

Aviral Kumar Tiwari

Indian Institute of Management Bodh Gaya ( email )

Uruvela, Prabandh Vihar, Bodh Gaya
Bodh Gaya, 824234
India

Faisal Alqahtani

University of Auckland ( email )

Auckland
New Zealand

Taibah University ( email )

Prince Naif Ibn Abdulaziz, Tayba, Medina Saudi Ara
Mediana, Madinah
Saudi Arabia

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