Analysis of a Basket of Currencies Portfolio Based on Copula-GARCH Method

摘要

This paper presents a new quantitative approach for finding the optimal weights of currency basket, with which the exchange rate risk of the basket is minimized. The article employs t-GARCH and Copula model for better measuring the dependency of currencies in basket. ȁC;Maximization by Parts in LikelihoodȁD; method is also used to improve the precision of parameters estimation. Our model is applied to daily returns of four currencies in a basket. Taking VaR as the measurement of risk, the empirical result suggests a larger weight should be optimally accorded to the dollar though there is a nonnegligible role for the Euro and Japanese yen.