Realized Copula

Matthias Fengler and Ostap Okhrin

No 1214, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

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 highfrequency data. Copula parameters are estimated in a method-of-moments type of fashion through Höffding'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 riskmanagement application, 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)
Pages: 34 pages
Date: 2012-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Realized copula (2012)
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