Portfolio Optimization Of Dynamic Copula Models For Dependent Financial Data Using Change Point Approach

Abstract

In this paper, the portfolio optimization based on CV aR is performed using the dynamic copula model for ...nancial data. Determining thebest model of dependency between ...nancial data has an important role intaking appropriate investment decisions. Due to the ...nancial data is alwaysağected by the *uctuations of the economic factors, the dynamic model washandled. On the other hand change point detection is also important for investment decisions. So this study presents an application of dynamic copulamodel with change point approach. We take the currency data (USD andEUR) from Turkish Central Bank to construct a portfolio. This study consists of two stages. In the ...rst stage, the marginal distributions and copulamodels of currency data are de...ned for full sample, and the portfolio optimization based on CV aR is performed. In the second stage, the change periodsof copula models are determined using binary segmentation method, and theportfolio optimization based on CV aR is performed for each period.