Industry Loan Allocation Model Copula-based Tail Risk Control

Abstract

Abstract:

The root cause of banking crisis lies in misallocation of assets, and the industry asset allocation is the top level of bank asset allocation. The key to preventing banks from huge losses or even crisis is to control the extreme risk of asset allocation. This study establishes an industry loan allocation model based on tail risk control. The innovation and characteristics of our paper have two aspects. Firstly, we establish an industry loan allocation model based on tail risk control by using the functional relationship between the tail correlation coefficient and the tail risk value of different industries and this model solves the drawbacks of the classical mean variance model that cannot measure the extreme risk of the tail due to the use of the Pearson linear correlation coefficient. Secondly, we establish the VaR constraint based on t-distribution, which improves the fit to the distribution feature of fat-tailed enhances the ability of VaR constraint to control the extreme risk of tail, and solves the inconsistency between the normal distribution hypothesis in VaR and the actual distribution feature of fat-tailed.

Key words: asset allocation, industry portfolio, extreme risk, tail risk, Copula

Zhang Shuming, Zhou Ying. Industry Loan Allocation Model Copula-based Tail Risk Control[J]. , 2019, 31(8): 84-96.

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