Dependence risk analysis in energy, agricultural and precious metals commodities: a pair vine copula approach

Satish Kumar, Aviral Tiwari, Ibrahim Raheem and Qiang Ji

Applied Economics, 2020, vol. 52, issue 28, 3055-3072

Abstract: We apply pair vine copulas, specifically the C-vine and R-vine copulas, to examine the conditional multivariate dependence pattern/structure and R-vine copula-based value-at-risk (VaR) to assess financial portfolio risk. We examine the co-dependencies of 13 major commodity markets (which include three energy commodities, six agricultural commodities and four precious metals prices) from 2 January 2003 to 19 December 2016. Dividing our sample into three sub-periods, namely pre-GFC, GFC and post-GFC, we find that the dependencies among commodities undergo changes in a complex manner, changing in different financial conditions, and that the Student-t copula appears on the maximum number of occasions, especially during the GFC period, signifying the existence of fatter tails in the distributions of returns. We further show that the co-dependencies computed using R-vine copulas are best suited to compute the portfolio VaR during the considered time period.

Date: 2020
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Working Paper: Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach (2019)
Working Paper: Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach (2019)
Working Paper: Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach (2019)
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DOI: 10.1080/00036846.2019.1705240

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