Dynamic D-Vine Model

Andréas Heinen and Alfonso Valdesogo Robles

Chapter 16 in Dependence Modeling:Vine Copula Handbook, 2010, pp 329-353 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe model the dependence structure of multivariate financial returns with a time-varying D-vine copula. Vine copulae are flexible multivariate copulae that are obtained by a hierarchical construction, with bivariate copulae as building blocks. We focus on D-vines, which are a subclass of vine copulae. In order to take into account the fact that the dependence structure between financial returns is not constant over time, we allow each of the possible bivariate copulae to be time-varying. We use two different data sets, six exchange rates and five Asian equity indices. We find that most of the time variation is found in the first tree of the D-vine. Moreover, while currencies can be adequately modeled with symmetric copulae, Asian equity indices require asymmetric copulae.

Keywords: Dependence Modeling; Joint Distributions; Copulae; Vines; Graphical Models; PCC (search for similar items in EconPapers)
Date: 2010
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