Realized copula

Matthias Fengler and Ostap Okhrin

No 2012-034, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: We introduce the notion of realized copula. Based on assumptions of the marginal distributions of daily stock returns and a copula family, realized copula is defined as the copula structure materialized in realized covariance estimated from within-day high-frequency data. Copula parameters are estimated in a method-of-moments type of fashion through Hoeffding's lemma. Applying this procedure day by day gives rise to a time series of copula parameters that is suitably approximated by an autoregressive time series model. This allows us to capture time-varying dependency in our framework. Studying a portfolio risk-management applica- tion, we find that time-varying realized copula is superior to standard benchmark models in the literature.

Keywords: realized variance; realized covariance; realized copula; multivariate dependence (search for similar items in EconPapers)
JEL-codes: C13 C14 C22 C50 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Working Paper: Realized Copula (2012)
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