A copula-based simulation model for supply portfolio risk

Sak, Halis and Haksöz, Çağrı (2011) A copula-based simulation model for supply portfolio risk. [Working Paper / Technical Report] Sabanci University ID:SU_FMAN_2011/0001

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We introduce a copula-based simulation model for supply portfolio risk in the presence of dependent breaches of contracts. We demonstrate our method for a supply chain contract portfolio of commodity metals traded at the London Metal Exchange (LME). The analysis of spot price data of six LME commodity metals gives us the motive to use a t-copula dependence structure with the t and the generalized hyperbolic marginals for the log-returns. We also provide an efficient simulation algorithm using importance sampling to quantify risk measures, supply-at-risk (SaR) and conditional supply-at-risk (cSaR). Numerical examples on a portfolio of six commodity metals demonstrate that our proposed method succeeds in decreasing the variance of the simulations. To our knowledge, this is the first paper proposing efficient simulation algorithms on a supply chain contract portfolio having a copula-based dependence structure with the generalized hyperbolic marginals.

Item Type:Working Paper / Technical Report
Uncontrolled Keywords:Breach of contract risk, Supply chain contracts, Procurement, Copula, Dependence, Importance sampling, Commodity metals
Subjects:H Social Sciences > HD Industries. Land use. Labor > HD0028 Management. Industrial Management
Q Science > QA Mathematics > QA273-280 Probabilities. Mathematical statistics
H Social Sciences > HD Industries. Land use. Labor > HD0061 Risk Management
H Social Sciences > HA Statistics
T Technology > T Technology (General) > T055.4-60.8 Industrial engineering. Management engineering > T57.6-57.97 Operations research. Systems analysis
T Technology > TS Manufactures > TS0155-194 Production management. Operations management
H Social Sciences > HG Finance > HG176.6 Financial engineering
ID Code:16334
Deposited By:Çağrı Haksöz
Deposited On:28 Jan 2011 09:50
Last Modified:29 Jul 2019 14:46

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