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Realized Copula

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  • Matthias R. Fengler
  • Ostap Okhrin

Abstract

We introduce the notion of realized copula. Based on assumptions of the marginal distri- butions of daily stock returns and a copula family, realized copula is dened as the copula structure materialized in realized covariance estimated from within-day high-frequency data. Copula parameters are estimated in a method-of-moments type of fashion through Hoeding'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 risk-management applica- tion, we find that time-varying realized copula is superior to standard benchmark models in the literature.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-034.

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Length: 33 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2012-034

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Keywords: realized variance; realized covariance; realized copula; multivariate dependence;

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References

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Cited by:
  1. Thorsten Dickhaus & Jakob Gierl, 2012. "Simultaneous test procedures in terms of p-value copulae," SFB 649 Discussion Papers SFB649DP2012-049, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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