portfolio optimization under varying market risk conditions: copula dependence and marginal value approaches

This paper aims to investigate the portfolio optimization under various market risk conditions using copula dependence and extreme value approaches. according to the modern portfolio theory, diversifying investments in assets that are less corre-lated with one another allows investors to assume less risk. in many models, asset returns are assumed to follow a normal distribution. consequently, the linear corre-lation coefficient explains the dependence between financial assets, and the mar-kowitz mean-variance optimization model is used to calculate efficient asset portfo-lios. in this regard, monthly data-driven information on the top 30 companies from 2011 to 2021 was the subject to consideration. in addition, extreme value theory was utilized to model the asset return distribution. using gumbel’s copula model, the dependence structure of returns has been analysed. distribution tails were modelled utilizing extreme value theory. if the weights of the investment portfolio are allocated according to gumbel’s copula model, a risk of 2.8% should be con-sidered to obtain a return of 3.2%, according to the obtained results.