The Decision of Price Risk of Portfolio in Inventory Financing

In order to mitigate concentration risk due to sharp fluctuations of price of single inventory in supply chain finance, this paper presents an application of Copula-GARCH model in the dynamic estimation of inventory portfolios' VaR with rolling time window based on the principle of risk diversification of Markowitz's. The back testing are performed which consists of Kupiec testing and the efficiency loss testing based on dynamic impawn rate considering fund cost from the perspective of long-term forecasting. The results show that the Clayton-copula could reasonably estimate the risk of portfolio and diversify risk markedly. In summary, Copula-GARCH models provide a new framework for managing the risk of portfolio in inventory financing practice for banks constrained by risk limitation.