Study On The Risk Of Two Assets Portfolio Based On COPULA And GARCH Model

With the high-speed development of economic globalization, on the one hand, itis bringing more investment opportunities and more convenient investmentenvironment for global investors, but on the other hand, it is accelerating the free flowof capital around the world which increase speculation, making the investors bearmore risks, especially for developing countries such as China, as China participated inthe world economy competition just a few year ago, and it doesn’t accumulate somuch experience, so it has to face more investment challenges in many areas, amongof them are gold and oil market.Gold and oil are two important big commodities, gold has a dual nature ofcommodity and currency, such property determines its important position in the fieldof commodities investment, oil is the lifeblood of a country’s economic development,it has strategically significance for a country. So it’s necessary to study the investmentrisks of these two commodities and provide some valuable quantitative informationfor institutional investors when make investment decisions.Firstly, this paper made simple descriptive statistics on gold and oil price, itfound that the gold price present the overall rise with small shocks in nearly20years,while the oil price present some big or small fluctuations. After further analysis ingold and oil yields, it found that the yields have rush peak and fat-tailed features, sowe used GARCH model to fit the marginal distribution of gold and oil yields.Secondly, this paper used parameter VaR method to measure the quantitative riskof gold and oil assets. The result showed that the oil investment risk is bigger than thegold, and oil risk volatility is also larger in a certain time interval, but the averageyield of oil is higher than gold. It is clear that high income associated with high risk.Finally, this article used Copulas theory and the Monte Carlo Simulation methodto measure the risk value of gold and oil portfolio. The results found that the portfolioinvestment is effective, the risk of the portfolio is between gold and oil, and also theportfolio risk is less than the average of the two assents risk, then we can see that inthe case of gold and oil have different risks, we can set gold and oil as a portfolio,such portfolio investment can effectively reduce the overall investment risks, as wellas to share the high investment profit brought by high-risk oil asset.