The Spectral Risk Measure Of Foreign Exchange Portfolio Based On Vine Copula

Foreign exchange reserve is an important component of China's international reserve assets, people usually choose a variety of foreign products, using the correlation among these products as much as possible to reduce the risk of portfolio. So it is quite important to measure the risk of the multiple foreign exchange reserves.China's foreign exchange market acts as an emerging capital market, and many investors are more seriously emotional than others in those developed countries.Ignoring the investor sentiment can cause to underestimate the risk of the market,and this can cause a greater crisis.This paper introduced a new risk measurement tool- spectral risk theory,to study the risk of multivariate foreign exchange investment portfolio, and to compare with the modern financial risk measure tool, value at risk(VaR) and conditional value at risk(CVaR). Empirical showed that the spectral risk measure can not only accurately measure the risk of portfolio, but also with much flexibility,and it can provide different risk preferences and different theoretical basis to different investors.Due to the distribution of financial assets has the characteristics of rush thick tail, the paper first constructed a model on the distribution of profit and loss of each single asset with extreme value theory. Then it introduced the theory of copula, especially the C Vine and D Vine theory, which are based on the paircopula modeling method with higher dimensional and created the model of Vine Copula-POT. The empirical results based on four kinds of foreign currency assets(USD, EUR, JPY and HKD) showed that C rattan structure with Frank copula can better describe the tail dependence structure of four foreign assets, and can overcome the traditional copula problem, that is dimension disaster.