Extreme Value And Copula Theory With The Application In Constant Proportion Portfolio Insurance Strategies

In the financial investment market,we need to pay attention to the possibility of extreme situations and their influences which might affect the market.Extreme Value Theory(EVT) has the advantage in explaining the properties of super threshold about bottom distribution determined by the tail the of the bottom distribution.The upper tail or the lower tail of the bottom distribution corresponds to the part larger than high threshold or less than low threshold respectively.In recent years,more and more researchers apply EVT to financial risk management and set up perfect statistical method gradually.That is to estimate the tail or parametric function of the bottom distribution by extreme order statistic or super threshold.In the risk management,the Risk of Value(VaR) is a widely used method for risk measurement.Risk management focuses more on catastrophic loss of low probability. The traditional VaR method which starts from the distribution of the whole rate of return omits extreme situations.The characteristics of the tail about the rate of return is the key consideration but not the whole distribution when EVT is applied to VaR. Due to the measurement for risk from a more reasonable and scientific respect,EVT becomes popular in risk management.In the meanwhile,the analysis for all kinds of correlative structure which might affect market is necessary because of the complicated relative connection between every unit in the financial market.Compared to simple linear correlation coefficient,correlation function Copula can measure the connection between investment portfolio produce comprehensively.Furthermore,the computation of portfolio VaR is introduced. At present,the financial risk triggers the global storming of financial market which results in the bath of investors and severe impact on economic entity,so that the investment organizations and the enterprises which rely too much on capital market begin to delve more portfolio insurance strategy of investment.The CPPI(Constant Proportion Portfolio Insurance) which takes low risk and stable returns is popular among more and more products design and investors under the situation of the spread of the global financial crisis and the convulsion of the financial market.CPPI is to realize guard against the risk and guarantee for principal at the price of losing some of the profit margin to cope with the market fall,but some severe fluctuations come along market fall.In order to explore the profit potential in the market,this thesis makes further researches on financial market by the computation of VaR,judgment of market trend and the application of effective and leading theory of capital,and improves the Floor and Constant Proportion in CPPI.The new strategy intensifies the purpose of combined insurance,makes decision on market by moving average method and market dynamics,changes amplification factors and manage risk actively on the basis of scientific measurement on risk.This thesis confirms that the new strategy works better in improving the margins of investment portfolio than CPPI does after some market periods via data simulation and sample analysis of financial market in China.