Modelling volatile time series with v-transforms and copulas

Alexander J. McNeil

Papers from arXiv.org

Abstract: An approach to the modelling of volatile time series using a class of uniformity-preserving transforms for uniform random variables is proposed. V-transforms describe the relationship between quantiles of the stationary distribution of the time series and quantiles of the distribution of a predictable volatility proxy variable. They can be represented as copulas and permit the formulation and estimation of models that combine arbitrary marginal distributions with copula processes for the dynamics of the volatility proxy. The idea is illustrated using a Gaussian ARMA copula process and the resulting model is shown to replicate many of the stylized facts of financial return series and to facilitate the calculation of marginal and conditional characteristics of the model including quantile measures of risk. Estimation is carried out by adapting the exact maximum likelihood approach to the estimation of ARMA processes and the model is shown to be competitive with standard GARCH in an empirical application to Bitcoin return data.

Date: 2020-02, Revised 2021-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://arxiv.org/pdf/2002.10135 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2002.10135

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().