Dependence Analysis And Risk Measurement Of Gold And Oil’s Rate Of Return Based On Copula

Gold, as a precious metal, has always been a monetary equivalent. In the rapid development of modern industry today, oil is an indispensable energy. Therefore, both gold and oil plays a important role in the society. However, gold and oil prices are fluctuating fiercely in recent years, exposing investors in huge investment risk, and even impeding the development of world economy. Meanwhile, there are imperceptible internal links between gold and oil. Therefore, it’s significant for scientific researchers to not only study the relationship between gold and oil, but also measure and manage the risk between them.There is a correlation between the gold market and the oil market, and both markets have the tail dependence. Therefore, the traditional way is not suitable. On this basis, the paper systematically studies the application of Copula method in risk measurement of the gold and oil market.In the theory section, we firstly summarizes the related theory of Copula, then explores the commonly-used Copula correlation. Also, we discusses how to appraise coefficients and select the model for various Copula functions. Lastly, we itemize risk measurement.In the empirical part, we firstly analyze the risk co-movement of gold market and oil market through correlation structure analysis with Copula parameters estimation based on correlation coefficient. The empirical results show that, there exists a weak and positive correlation between the two, with the optimal model of a correlation structure using Gumbel Copula function. Finally, we calculate VaR and CVaR of different risk combination by Monte Carlo simulation, and test the integrity and rigidity by back testing. The above work provides a better theoretical and technical support for the research not only in relationship between gold market and the oil market, but also in risk management model.