Dynamic D-Vine Copula Model with Applications to Value-at-Risk (VaR)

Autor(es)

Tofoli, V, Paula ; Ziegelmann, Flavio A. ^[1] ; Candido, Osvaldo ^[2] ; Valls Pereira, Pedro L. ^[3]

Afiliação do(s) autor(es)

^[1] Univ Fed Rio Grande do Sul, Dept Stat, Porto Alegre, RS - Brazil

^[2] Tofoli, Paula, V, Univ Catolica Brasilia, Grad Program Econ, SGAN 916, Off A-120, BR-70790160 Brasilia, DF - Brazil

^[3] Sao Paulo Sch Econ, Grad Program Econ, Sao Paulo, SP - Brazil

• Tipo de documento: Artigo Científico
• Fonte: JOURNAL OF TIME SERIES ECONOMETRICS; v. 11, n. 2 JUL 2019.
• Citações Web of Science: 0

Resumo

Vine copulas are multivariate dependence models constructed from pair-copulas (bivariate copulas). In this paper, we allow the dependence parameters of the pair-copulas in a D-vine decomposition to be potentially time-varying, following a restricted ARMA(1, m) process, in order to obtain a very flexible dependence model for applications to multivariate financial return data. We investigate the dependence among the broad stock market indexes from Germany (DAX), France (CAC 40), Britain (FTSE 100), the United States (S\&P 500) and Brazil (IBOVESPA) both in a crisis and in a non-crisis period. We find evidence of stronger dependence among the indexes in bear markets. Surprisingly, though, the dynamic D-vine copula indicates the occurrence of a sharp decrease in dependence between the indexes FTSE and CAC in the beginning of 2011, and also between CAC and DAX during mid-2011 and in the beginning of 2008, suggesting the absence of contagion in these cases. We evaluate the dynamic D-vine copula with respect to Value-at-Risk (VaR) forecasting accuracy in crisis periods. The dynamic D-vine outperforms the static D-vine in terms of predictive accuracy for our real data sets. We also investigate the dynamic D-vine copula in a simulation study and the overall results of the Monte Carlo experiments are quite favorable to the dynamic D-vine copula in comparison with a static D-vine copula. (AU)

• Processo FAPESP: 13/22930-0 - Descoberta de preços em carteiras de arbitragem de alta dimensão
• Beneficiário: Pedro Luiz Valls Pereira
• Modalidade de apoio: Auxílio à Pesquisa - Temático