Importance of Modelling the Dependence for Risk Capital Allocation Abstract

Abstract

Portfolio managers’ first concern is the accuracy of the measurement and the allocation of the risk of theportfolio. There exists many risk measures in the literature which provide a solution to the formerproblem. On the other hand, risk capital allocation provides an efficient portfolio management. Itdistributes the diversification benefits among the sub-portfolios. It is known that one of the importantsteps of the risk management is the determination of the dependence structure of sub-portfolios. Copulaprovides a nice and easy solution to this problem. In this study it is shown that the dependence structureplays an important role for risk capital allocation and inaccurate selection of copula can createineffective allocations

Özet

Portföy yöneticilerinin en önemli kaygılarından biri portföy risklerinin ölçümünün ve bu risklerindağıtımının doğruluğudur. Literatürde birçok risk ölçümü ilk soruna çözüm üretmektedir. Diğer taraftan

Keywords: risk sermayesi dağıtımı, copula, risk ölçümleri, geometrik Brownian hareketi