The Application Of Copula-GARCH Model In Financial Risk Measurement

In recent years,finance is developing faster and faster on the basis of the acceleration of global economic and financial integration.Financial market is more and more active,not only in the increasing number of financial institutions,but also in the expansion of financial institutions.The active financial market has opened the convenient channel for people's life,but it also inevitably produces many risk problems.Financial risks not only cause immeasurable losses to investors,but also bring huge negative effects to the society.Therefore,strengthening risk management is a top priority.How to manage financial risks effectively is very important for financial institutions and investors.Our country's financial risk has erupted frequently,but at present,the risk measurement tools are limited.The existing risk measurement tools have great errors in measuring the value of risk,which makes it hard for investors and financial institutions to grasp the size of risks.The first step in controlling financial risk is to help investors understand the size of the risk of the target investment assets.With the development of financial market,the risk measurement of single assets can not meet the needs of investors,and the correlation structure between financial assets directly affects the accuracy of VaR's measurement risk.The correlation structure between market and asset is more and more complex,which makes the traditional linear correlation coefficient analysis method can not accurately depict its correlation.The introduction of Copula technology can solve this problem.The Copula function can describe the related structure between financial assets,and the marginal distribution of financial assets can be determined by the GARCH model.In this paper,the Copula function is combined with the GARCH model,and a new Copula function is constructed with several traditional Copula functions,which is introduced into the model.Because the Copula-GARCH model can be a nonlinear correlation between financial assets,we can use it to measure the risk of portfolios.This paper selects the Shanghai Composite Index and Shenzhen Component Index closing price as the research object,and determine their respective marginal distribution by using the GARCH model.Then we select the several troditional appropriate Copula function as basic structure to form new Copula function.In the end,the function of the new structure is compared with the traditional function,and the results show that the new structure has better effect than the original function in describing the function of assets related to the structure.After determining the best Copula function of fitting effect,,combined with Monte Carlo simulation,we calculate the VaR value of the object portfolio and select the best portfolio weight portfolio to provide a theoretical basis for investors to develop reasonable investment strategies,thereby reducing investment risk.This enriches the quantitative system of financial risk.