APPLICATION OF THE COPULA FRANK FOR ESTIMATING VALUE AT RISK (VAR) IN TELECOMMUNICATION SUB SECTOR STOCKS

Abstract

Investment is investing capital with the aim of getting money or additional profits. When investing, you need to pay attention to risks that can cause losses for investors. One method that is widely used to measure investment risk is Value at Risk (VaR). VaR often has limitations, especially in capturing non-linear dependencies between variables, so a copula function is needed that can handle moderate to strong dependencies. One of the copulas used is the Archimedian copula with Frank subcopula. This article aims to estimate investment risk using the Value at Risk (VaR) method based on the Frank copula approach and to analyze the dependency structure between stock returns. The main steps in estimating VaR using the Frank copula are calculating the return of each stock, estimating the parameters of the Frank copula, carrying out data simulations using Frank copula parameters, calculating the VaR value using Frank copula. The data used in this research comes from shares of PT. Telkom Indonesia Tbk and shares PT. Indosat Ooredoo Hutchison Tbk. These two stocks have a positive correlation of 0.136. However, such a low correlation may still indicate for non-linear dependencies or tail dependencies that cannot be captured by linear correlations, so additional analysis, namely Frank copula, is required. The estimated Frank copula parameter value is 0.825. From the VaR estimation results, the risk obtained at a 90% confidence level is -0.0222, at a 95% confidence level it is -0.0281 and at a 99% confidence level it is -0.0383.