Study On Measuring The Extreme Risk Of Portfolios Of US Dollar And The Oil

With the continuous development of globalization,global financial markets have been linked closely day by day.As a consequence,financial risks are easy to spread among different markets.As the most important currency and energy in the world,US dollar and oil fluctuate closely.The violent fluctuation of any of them can easily have a great impact on the other side market,and the interlinked concussion between them will often spread to the world,thereby causing the violent fluctuation of the whole financial market.In addition,due to the need of economic development,the demands for US dollar and oil are increasing in all countries.In recent years,influenced by factors such as the political and economic situation in the world,the US dollar and the international oil price have oscillated frequently,making risk managers urgent to take an appropriate method to measure the extreme risk of portfolios which are comprised by different proportion of US dollar and oil.Reviewing the existing studies,there are few researches on the risk measurement of the portfolios of the US dollar and the oil.Furthermore the related researches do not consider the negative codependence between these two markets,nor do they examine the risk level of the portfolios of them from the perspective of extreme risk.Based on this,this paper applies the daily yield of US Dollar Index and the WTI crude oil spot from January 1986 to June 2017 to indicate the price fluctuations of US dollar and oil.We also use the semi-parametric POT model which can generalize the extreme fluctuation and the conventional fluctuation of the random variable and characterize the marginal distribution of fluctuations of US dollar and oil price.After observing the characteristics of samples,this paper fitts 14 Rotated Copula functions.By goodness of fit test we select Rotated 90° BB1 Copula to characterize the joint distribution of the price fluctuations of these two assets and the negative codependence between them.Subsequently,we apply the POT-Copula model to simulate the fluctuation of 101 different portfolios which are comprised by different proportion of US dollar and oil,and estimate their VaR and ES.The conclusions of this paper are as follows:Firstly,from the relationship between the price fluctuation of the US dollar and the price fluctuation of the oil,the probability of that they fluctuate in the reverse direction is 8% greater than that they fluctuate in the same direction on the whole.The probability of that they surging or tumbling at the same time is 0,while the US dollar collapsing and the oil booming is more likely than the US dollar booming and the oil collapsing.Secondly,from the result of risk measurement of portfolios which are comprised by different proportion of US dollar and oil,the plunge risk of portfolios presents a down and up trend with the increase in the share of US dollar.The booming risk of portfolios presents a decline trend with the increase in the share of US dollar in the portfolio.According to the trend of risk change,we can get the minimum risk portfolio of US dollar and oil.Finally,we can see from the back testing of the model that the POT-Copula model perfectly describes the booming risk of 101 portfolios which are comprised by different proportion of US dollar and oil,and it can well depict the plunge risk of these 101 portfolios.