Risk Analysis in Asian Emerging Markets using Canonical Vine Copula and Extreme Value Theory

Apiwat Ayusuk, Songsak Sriboonchitta

Abstract

Normal distributions are appropriate to describe the behavior of stockmarket returns only when returns do not exhibit extreme behavior. This studyexamined extreme value theory (EVT) to capture more precisely the tail distri-bution of market risk with vine copula and to identify the dependence structuresbetween Asian emerging markets. We used value at risk (VaR) and conditionalvalue at risk (CVaR), based on simulation method, to measure the market riskand portfolio optimization. Our empirical ndings are that the conditional depen-dence between asymmetric volatility among ve markets are positive and have thedependence between Indian and Thai stronger than other markets. The results ofVaR and CVaR show that the Chinese market has the highest risk.