Estimating hedged portfolio value-at-risk using the conditional copula: An illustration of model risk

The conventional portfolio value-at-risk model with the assumption of normal joint distribution, which is commonly practiced, exhibits considerable biases due to model specification errors. This paper utilizes the estimation of hedged portfolio value-at-risk (HPVaR) to illustrate the potential model risk due to inappropriate use of the correlation coefficient and normal joint distribution between index spot and futures returns. The results show...