There are several ways to measure the portfolio risk. One of these ways is using copulas. In this article, we will learn about copulas and show the difference between choosing different copulas in risk management. With goodness-of-fit tests for distributions we will see that the use of Student's copula performs best. Gaussian copula also indicates acceptable results while Gumbel copula gives us worse results. When analyzing the joint extreme downward and upward movements, we see that according to Student's copula, the other two underestimate the probability that extreme events will occur. When analyzing portfolio diversification benefits, it turns out that the Gaussian copula gives more optimistic predictions, while Gumbel's gives more pessimistic predictions compared to the Student's copula.
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