Estimating the Value at Risk of a bank’s portfolio in sovereign bonds using a DCC-Copula model
Authors
Gomez-Gonzalez, Jose Eduardo
Gualtero-Briceño, Daniela
Melo-Velandia, Luis Fernando
Editor
Publication date
2021-02-25
Document language
eng
Publisher
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Abstract
Rises in sovereign risk adversely affect banks reducing their profits and increasing their funding costs. Impacts are specially strong on banks holding important positions of government debt in the investment portfolios. This study applies a DCC-Copula model to estimate the VaR for a portfolio composed of 30 sovereign bonds from ten different countries and three different maturities. Results indicate that the model proposed in this study outperforms competing benchmark models under various back-testing criteria. The method here developed is useful for global banks holding a diversified portfolio of sovereign bonds, especially in emerging market countries in which banks mostly invest in public debt.
Description
Códigos JEL
C46 - Specific Distributions; Specific Statistics, C52 - Model Evaluation, Validation, and Selection, C58 - Financial Econometrics, G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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Keywords
Value at Risk, Banks' market risk, Dynamic copula models, Back-testing
