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Managing risk with a realized copula parameter

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  • Fengler, Matthias R.
  • Okhrin, Ostap

Abstract

A dynamic copula model is introduced, in which the copula structure is inferred from the realized covariance matrix estimated from within-day high-frequency data. The estimation is carried out in a method-of-moments fashion using Hoeffding’s lemma. Applying this procedure day by day gives rise to a time series of daily copula parameters which can be approximated by an autoregressive time series model. This allows one to capture time-varying dependence. In an application to portfolio risk-management, it is found that this time-varying realized copula model exhibits very good forecasting properties for the one-day ahead value at risk.

Suggested Citation

  • Fengler, Matthias R. & Okhrin, Ostap, 2016. "Managing risk with a realized copula parameter," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 131-152.
    • Handle: RePEc:eee:csdana:v:100:y:2016:i:c:p:131-152
    DOI: 10.1016/j.csda.2014.07.011
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