STRESS TESTING AS A KEY TOOL FOR FINANCIAL ASSETS RISK MANAGEMENT WITH EMPHASIS ON EXTREME VALUE THEORY AND COPULA FUNCTIONS

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SARANJ ALIREZA; NOURAHMADI MARZIYEH

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Paper Information

Journal: JOURNAL OF ASSET MANAGEMENT AND FINANCING Year:2018 | Volume:6 | Issue:3 (22) Page(s): 67-86

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Information Journal Paper

Title

STRESS TESTING AS A KEY TOOL FOR FINANCIAL ASSETS RISK MANAGEMENT WITH EMPHASIS ON EXTREME VALUE THEORY AND COPULA FUNCTIONS

Author(s)

SARANJ ALIREZA | NOURAHMADI MARZIYEH | Issue Writer Certificate

Keywords

STRESS TESTINGQ1

VALUE AT RISKQ1

EXPECTED SHORTFALLQ1

EXTREME VALUE THEORYQ1

T COPULAQ2

KERNEL SMOOTHED EMPIRICAL DISTRIBUTIONQ1

Abstract

STRESS TESTING is a simulation technique to evaluate portfolio reactions to several critical situations. In this paper, we review different STRESS TESTING methodologies to examine impacts of different stress scenarios on an Iranian equity portfolio. We identify the extreme tails of all risk factors in our portfolio by EXTREME VALUE THEORY and model their dynamic and nonlinear dependence structures with copula functions. We performed three stress tests such as historical, hybrid and hypothetical stress scenarios to simulate the joint evolution of risk factors over time in a realistic way. According to the empirical findings, we find that historical scenario method is not a suitable tool for STRESS TESTING due to several drawbacks and show the importance of forward-looking analysis such as hybrid and hypothetical scenarios. We also indicate that the hypothetical stress approach is superior to the other two scenarios from the perspective of STRESS TESTING.

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APA: Copy

SARANJ, ALIREZA, & NOURAHMADI, MARZIYEH. (2018). STRESS TESTING AS A KEY TOOL FOR FINANCIAL ASSETS RISK MANAGEMENT WITH EMPHASIS ON EXTREME VALUE THEORY AND COPULA FUNCTIONS. JOURNAL OF ASSET MANAGEMENT AND FINANCING, 6(3 (22) ), 67-86. SID. https://sid.ir/paper/245697/en

Vancouver: Copy

SARANJ ALIREZA, NOURAHMADI MARZIYEH. STRESS TESTING AS A KEY TOOL FOR FINANCIAL ASSETS RISK MANAGEMENT WITH EMPHASIS ON EXTREME VALUE THEORY AND COPULA FUNCTIONS. JOURNAL OF ASSET MANAGEMENT AND FINANCING[Internet]. 2018;6(3 (22) ):67-86. Available from: https://sid.ir/paper/245697/en

IEEE: Copy

ALIREZA SARANJ, and MARZIYEH NOURAHMADI, “STRESS TESTING AS A KEY TOOL FOR FINANCIAL ASSETS RISK MANAGEMENT WITH EMPHASIS ON EXTREME VALUE THEORY AND COPULA FUNCTIONS,” JOURNAL OF ASSET MANAGEMENT AND FINANCING, vol. 6, no. 3 (22) , pp. 67–86, 2018, [Online]. Available: https://sid.ir/paper/245697/en

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