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Dynamic Copulas and Long Range Dependence

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  • Beatriz Vaz de Melo Mendes, Silvia Regina Costa Lopes

    (IM-COPPEAD/UFRJ, Rio de Janeiro)

Abstract

This paper extends the evolution equation of Patton (2006) for the time variation of the copula parameters by specifying an autoregressive fractionally integrated term. For any copula parameter there is a suitable one-to-one transformation so that the maximum likelihood estimation method may be employed. It is suggested an exploratory tool based on the copula data crossproducts for detecting the presence of long range dependence on the copula level of real data. We simulate from copula models possessing long range dependence and work out two examples using real data. Modeling long range dependence on the level of dynamic copulas has the potential for providing improved forecasts and are useful for financial and economic applications.

Suggested Citation

  • Beatriz Vaz de Melo Mendes, Silvia Regina Costa Lopes, 2011. "Dynamic Copulas and Long Range Dependence," Frontiers in Finance and Economics, SKEMA Business School, vol. 8(2), pages 89-111, October.
    • Handle: RePEc:ffe:journl:v:8:y:2011:i:2:p:89-111
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    More about this item

    Keywords

    Long Memory; Conditional Copulas; Time Series; Financial Applications.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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