<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>In order to accurately describe the risk dependence structure and correlation between financial variables, carry out scientific financial risk assessment, and provide the basis for accurate financial decision-making, first the basic theory of Copula function is established and the mixed Copula model is constructed. Then the hybrid Copula model is nested in a hidden Markov model (HMM), the risk dependences among banking, insurance, securities and trust industries are analysed, and the Copula–Garch model is constructed for empirical analysis of investment portfolio. Finally, the deep learning Markov model is adopted to predict the financial index. The results show that the mixed Copula model based on HMM is more effective than the single Copula and the mixed Copula models. The empirical structure shows that among the four major financial industries in China, the banking and insurance industries have strong interdependence and high probability of risk contagion. The investment failure rate under 95%, 97.5% and 99% confidence intervals calculated by Copula–Garch model are 4.53%, 2.17% and 1.08%, respectively. Moreover, the errors of deep learning Markov model in stock price prediction of Shanghai Pudong Development Bank (sh600000), Guizhou Moutai (sh600519) and China Ping An Insurance (sh601318) are 2.56%, 2.98% and 3.56% respectively, which indicates that the four major financial industries in China have strong interdependence and risk contagion, so that the macro or systemic risks may arise, and the deep-learning Markov model can be adopted to predict the stock prices.</p>
</abstract>

In order to accurately describe the risk dependence structure and correlation between financial variables, carry out scientific financial risk assessment, and provide the basis for accurate financial decision-making, first the basic theory of Copula function is established and the mixed Copula model is constructed. Then the hybrid Copula model is nested in a hidden Markov model (HMM), the risk dependences among banking, insurance, securities and trust industries are analysed, and the Copula–Garch model is constructed for empirical analysis of investment portfolio. Finally, the deep learning Markov model is adopted to predict the financial index. The results show that the mixed Copula model based on HMM is more effective than the single Copula and the mixed Copula models. The empirical structure shows that among the four major financial industries in China, the banking and insurance industries have strong interdependence and high probability of risk contagion. The investment failure rate under 95%, 97.5% and 99% confidence intervals calculated by Copula–Garch model are 4.53%, 2.17% and 1.08%, respectively. Moreover, the errors of deep learning Markov model in stock price prediction of Shanghai Pudong Development Bank (sh600000), Guizhou Moutai (sh600519) and China Ping An Insurance (sh601318) are 2.56%, 2.98% and 3.56% respectively, which indicates that the four major financial industries in China have strong interdependence and risk contagion, so that the macro or systemic risks may arise, and the deep-learning Markov model can be adopted to predict the stock prices.

Adoption of deep learning Markov model combined with copula function in portfolio risk measurement

Department of Accounting and Finance, Faculty of Administrative Sciences

Applied Mathematics and Nonlinear Sciences

This work is licensed under the Creative Commons Attribution 4.0 International License.

In order to accurately describe the risk dependence structure and correlation between financial variables, carry out scientific financial risk assessment, and...

Adoption of deep learning Markov model combined with copula function in portfolio risk measurement

Published Online: Dec 13, 2021

Page range: 901 - 916

Received: Jun 17, 2021

Accepted: Sep 24, 2021

DOI: https://doi.org/10.2478/amns.2021.2.00112

Keywords
mixed Copula model, HMM, financial index, risk contagion, investment failure rate

© 2021 Liangxiong Li et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Adoption of deep learning Markov model combined with copula function in portfolio risk measurement

Published Online: Dec 13, 2021

Page range: 901 - 916

Received: Jun 17, 2021

Accepted: Sep 24, 2021

DOI: https://doi.org/10.2478/amns.2021.2.00112

Keywordsmixed Copula model, HMM, financial index, risk contagion, investment failure rate

© 2021 Liangxiong Li et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Keywords
mixed Copula model, HMM, financial index, risk contagion, investment failure rate