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A COPULA-GARCH MODEL

Ciprian Necula

Sažetak

In the present study we develop a new two-dimensional Copula-GARCH model. This type of twodimensional
process is characterized by a dependency structure modeled using a copula function.
For the marginal densities we employ a GARCH(1,1) model with innovations drawn from a t-
Student distribution. The model can be easily extended by using more sophisticated processes for
the marginal densities. The static specification of the model assumes that the dependency structure
of the two data series does not vary in time implying that the parameters of the copula function are
constant. On the other hand, the dynamic specification models explicitly the dynamics of these
parameters. We econometrically estimate the parameters of the two specifications using various
copula functions, focusing on the mixture between the Gumbel and Clayton copulas. We employ daily
index returns from two emerging and two developed financial markets. The main finding is that
including a varying dependency structure improves the goodness-of-fit of the Copula-GARCH model.

Ključne riječi

copula functions; multidimensional GARCH; volatility; dependency structure

Hrčak ID:

57908

URI

https://hrcak.srce.hr/57908

Datum izdavanja:

1.7.2010.

Podaci na drugim jezicima: hrvatski

Posjeta: 1.931 *