Analyzing Asymetric Dependence in Exchange Rates using Copula

Alexie Alupoaiei

No 44, Advances in Economic and Financial Research - DOFIN Working Paper Series from Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB

Abstract: In this paper I aimed to analyze the use of copulas in financial application, namely to investigate the assumption of asymmetric dependence and to compute some measures of risk. For this purpose I used a portfolio consisting in four currencies from Central and Eastern Europe. Due to some stylized facts observed in exchange rate series I filter the data with an ARMA GJR model. The marginal distributions of filtered residuals are fitted with a semi-parametric CDF, using a Gaussian kernel for the interior of distribution and Generalized Pareto Distribution for tails. To obtain a better view of the dependence among the four currencies I proposed a decomposition of large portfolio in other three bivariate sub-portfolios. For each of them I compute Value-at-Risk and Conditional Value-at-Risk and then backtest the results.

Keywords: Value-at-Risk; copula; Generalized Pareto Distribution (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:cab:wpaefr:44

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