Risk Measurement of Portfolios on Stock and Foreign Exchange Markets: A Copula Approach

Tran Trong Nguyen, Nguyen Thu Thuy

Abstract



In this paper, we propose a method for risk measurement of a portfolio containing indexes on Vietnam stock and foreign exchange markets. Specifically, copula method is applied to estimate the Value at Risk (VaR) and the Conditional Value at Risk (CVaR) of some optimal portfolios consisting Vietnam stock index VNINDEX and exchange rates, which are exchanged frequently in Vietnam. The results show that, in Vietnam, when one invests on both these markets, risk on stock market is higher than on foreign exchange. Therefore, in order to reduce the risk, one may probably invest on stock market with a lower proportion than on foreign exchange market. Moreover, one may choose strong foreign currency such as USD, GBP, CNY, EUR,… or currency of ASEAN countries to make the risk of porfolios be low.

Keywords


Risk measurement, portfolio, stock market, foreign exchange market.

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