Managing risk with a realized copula parameter

Matthias Fengler and Ostap Okhrin

Computational Statistics & Data Analysis, 2016, vol. 100, issue C, 131-152

Abstract: A dynamic copula model is introduced, in which the copula structure is inferred from the realized covariance matrix estimated from within-day high-frequency data. The estimation is carried out in a method-of-moments fashion using Hoeffding’s lemma. Applying this procedure day by day gives rise to a time series of daily copula parameters which can be approximated by an autoregressive time series model. This allows one to capture time-varying dependence. In an application to portfolio risk-management, it is found that this time-varying realized copula model exhibits very good forecasting properties for the one-day ahead value at risk.

Keywords: Copula; Multivariate dependence; Realized covariance; Realized variance; Value at risk (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:100:y:2016:i:c:p:131-152

DOI: 10.1016/j.csda.2014.07.011

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