VALUE AT RISK IN STOCK PORTFOLIO USING T-COPULA: Case Study of PT. Indofood Sukses Makmur, Tbk. and Bank Mandiri (Persero), Tbk.

Abstract

Value at Risk (VaR) is a measuring tool that can calculate the amount of the worst losses that occur in the stock portfolio with a certain level of confidence and in certain period of time. In general, financial data has a high volatility value, which is caused the variance of residual model is not constant and nonnormally distributed. In this case, Copula-GARCH can be used to calculate the VaR. The Generalized Autoregressive Conditional Heterocedasticity (GARCH) model can resolve the time series models that have non-constant residual variance. This research use the t-Copula to model the dependency structure in the combined distribution of stock returns. The t-copula function is good in terms of reaching the extreme value state that often occurs in the financial data of stock returns and has heavytails. The empirical data uses the stock return data of PT. Indofood Sukses Makmur, Tbk (INDF) and Bank Mandiri (Persero) Tbk (BMRI) in the period of October 8, 2012 - October 8, 2017. In this research, Value at Risk is calculated using the period 1 day ahead at 90% confidence level that is 0.042, at 95% confidence level that is 0.025 and at 99% confidence level that is 0.017 with weight of each stock is 50%.