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Copula-Based Models for Financial Time Series

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Andrew J. Patton

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Abstract

This paper presents an overview of the literature on applications of copulas in the modelling of financial time series. Copulas have been used both in multivariate time series analysis, where they are used to charaterise the (conditional) cross-sectional dependence between individual time series, and in univariate time series analysis, where they are used to characterise the dependence between a sequence of observations of a scalar time series process. The paper includes a broad, brief, review of the many applications of copulas in finance and economics.

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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe21.

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Date of creation: 2008
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Handle: RePEc:sbs:wpsefe:2008fe21

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  2. Chen, Xiaohong & Fan, Yanqin, 2006. "Estimation and model selection of semiparametric copula-based multivariate dynamic models under copula misspecification," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 125-154. [Downloadable!] (restricted)
  3. Christoph Schleicher & Matthew Hurd & Mark Salmon, 2005. "Using Copulas to Construct Bivariate Foreign Exchange Distributions with an Application to the Sterling Exchange Rate Index," Computing in Economics and Finance 2005 215, Society for Computational Economics.
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  4. Xiaohong Chen & Yanqin Fan & Victor Tsyrennifov, 2002. "Efficient Estimation of Semiparametric Multivariate Copula Models," Working Papers 0420, Department of Economics, Vanderbilt University, revised Sep 2004. [Downloadable!]
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  5. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109. [Downloadable!]
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  6. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
  7. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
  8. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(4), pages 1137-1187.
  9. Giesecke, Kay, 2004. "Correlated default with incomplete information," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1521-1545, July. [Downloadable!] (restricted)
  10. Alsina, Claudi & Nelsen, Roger B. & Schweizer, Berthold, 1993. "On the characterization of a class of binary operations on distribution functions," Statistics & Probability Letters, Elsevier, vol. 17(2), pages 85-89, May. [Downloadable!] (restricted)
  11. Francis X. Diebold & Jinyong Hahn & Anthony S. Tay, 1999. "Multivariate Density Forecast Evaluation And Calibration In Financial Risk Management: High-Frequency Returns On Foreign Exchange," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 661-673, November. [Downloadable!] (restricted)
  12. Carrasco, Marine & Chen, Xiaohong, 2002. "Mixing And Moment Properties Of Various Garch And Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 18(01), pages 17-39, February. [Downloadable!]
  13. Granger, Clive W.J. & Terasvirta, Timo & Patton, Andrew J., 2006. "Common factors in conditional distributions for bivariate time series," Journal of Econometrics, Elsevier, vol. 132(1), pages 43-57, May. [Downloadable!] (restricted)
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  14. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2006. "Volatility and Correlation Forecasting," Handbook of Economic Forecasting, Elsevier. [Downloadable!] (restricted)
  15. Genest, C. & Quesada Molina, J. J. & Rodriguez Lallena, J. A. & Sempi, C., 1999. "A Characterization of Quasi-copulas," Journal of Multivariate Analysis, Elsevier, vol. 69(2), pages 193-205, May. [Downloadable!] (restricted)
  16. Brendstrup, Bjarne & Paarsch, Harry J., 2007. "Semiparametric identification and estimation in multi-object, English auctions," Journal of Econometrics, Elsevier, vol. 141(1), pages 84-108, November. [Downloadable!] (restricted)
  17. Corradi, Valentina & Swanson, Norman R., 2006. "Predictive Density Evaluation," Handbook of Economic Forecasting, Elsevier. [Downloadable!] (restricted)
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  18. Chen, Xiaohong & Fan, Yanqin, 2006. "Estimation of copula-based semiparametric time series models," Journal of Econometrics, Elsevier, vol. 130(2), pages 307-335, February. [Downloadable!] (restricted)
  19. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  20. Ling Hu, 2006. "Dependence patterns across financial markets: a mixed copula approach," Applied Financial Economics, Taylor and Francis Journals, vol. 16(10), pages 717-729, June. [Downloadable!] (restricted)
  21. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(3), pages 717-763, July. [Downloadable!] (restricted)
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  22. Denuit, Michel & Lambert, Philippe, 2005. "Constraints on concordance measures in bivariate discrete data," Journal of Multivariate Analysis, Elsevier, vol. 93(1), pages 40-57, March. [Downloadable!] (restricted)
  23. Bartram, Sohnke M. & Taylor, Stephen J. & Wang, Yaw-Huei, 2007. "The Euro and European financial market dependence," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1461-1481, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cees Diks & Valentyn Panchenko & Dick van Dijk, 2008. "Out-of-sample comparison of copula specifications in multivariate density forecasts," Discussion Papers 2008-23, School of Economics, The University of New South Wales. [Downloadable!]
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  2. David Peel & Ivan Paya & Shenqiu Zhang, 2009. "Linkages between Shanghai and Hong Kong stock indices," Working Papers 005927, Lancaster University Management School, Economics Department. [Downloadable!]
  3. Chollete, Loran & Pena, Victor de la & Lu, Ching-Chih, 2009. "International Diversification: A Copula Approach," UiS Working Papers in Economics and Finance 2009/27, University of Stavanger. [Downloadable!]
  4. Xiaohong Chen & Roger Koenker & Zhijie Xiao, 2008. "Copula-Based Nonlinear Quantile Autoregression," Boston College Working Papers in Economics 691, Boston College Department of Economics. [Downloadable!]
  5. Xiaohong Chen & Roger Koenker & Zhijie Xiao, 2008. "Copula-Based Nonlinear Quantile Autoregression," Cowles Foundation Discussion Papers 1679, Cowles Foundation, Yale University. [Downloadable!]
  6. Chollete, Loran & de la Pena , Victor & Lu, Ching-Chih, 2009. "International Diversification: An Extreme Value Approach," UiS Working Papers in Economics and Finance 2009/26, University of Stavanger. [Downloadable!]
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