Post by Sapphire Capital on Jul 16, 2008 6:11:10 GMT 4
Modeling International Financial Returns with a Multivariate Regime Switching Copula
LORAN CHOLLETE
Norwegian School of Economics and Business Administration (NHH) - Department of Finance and Management Science
ALFONSO VALDESOGO ROBLES
Catholic University of Louvain - Center for Operations Research and Econometrics (CORE)
ANDRÉAS HEINEN
Universidad Carlos III de Madrid - Department of Statistics and Econometrics March, 04 2008
Abstract:
In order to capture observed asymmetric dependence in international financial returns, we construct a multivariate regime-switching model of copulas. We model dependence with one Gaussian and one canonical vine copula regime. Canonical vines are constructed from bivariate conditional copulas and provide a very flexible way of characterizing dependence in multivariate settings. We apply the model to returns from the G5 and Latin American regions, and document two main findings. First, we discover that models with canonical vines generally dominate alternative dependence structures. Second, the choice of copula is important for risk management, because it modifies the Value at Risk (VaR) of international portfolio returns.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1102632_code362609.pdf?abstractid=1102632&mirid=3
LORAN CHOLLETE
Norwegian School of Economics and Business Administration (NHH) - Department of Finance and Management Science
ALFONSO VALDESOGO ROBLES
Catholic University of Louvain - Center for Operations Research and Econometrics (CORE)
ANDRÉAS HEINEN
Universidad Carlos III de Madrid - Department of Statistics and Econometrics March, 04 2008
Abstract:
In order to capture observed asymmetric dependence in international financial returns, we construct a multivariate regime-switching model of copulas. We model dependence with one Gaussian and one canonical vine copula regime. Canonical vines are constructed from bivariate conditional copulas and provide a very flexible way of characterizing dependence in multivariate settings. We apply the model to returns from the G5 and Latin American regions, and document two main findings. First, we discover that models with canonical vines generally dominate alternative dependence structures. Second, the choice of copula is important for risk management, because it modifies the Value at Risk (VaR) of international portfolio returns.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1102632_code362609.pdf?abstractid=1102632&mirid=3