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Copula Models of the Joint Distribution of Exchange Rates

Author

Listed:
  • Antonov I. N.

    (Astrakhan State University)

  • Knyazev A. G.
  • Lepekhin O. A.

Abstract

The paper aims at investigating the joint distribution of currency rates using HAC, HKC and Vine copulas in several time periods. Models were constructed using Archimedean copulas including Gumbel-Hougaard, Joe BB1 and Frank copulas, and their parameters were estimated by maximum likelihood. The best models were built using hierarchical Archimedean copulas and the worst were obtained with vine copulas. In comparison with the HAC, the main advantage of hierarchical Kendall copulas is the possibility to use a two-parameter copula Joe BB1. The best models were obtained with Frank copula, while Gumbel-Hougaard copula has shown a decent result only in the third period. Additionally, in this paper was made an attempt to get the forecast of exchange rates using Kendall’s and Marshall-Olkin’s algorithms. The most accurate forecast was obtained with Gumbel-Hougaard copula for euro and franc.

Suggested Citation

  • Antonov I. N. & Knyazev A. G. & Lepekhin O. A., 2016. "Copula Models of the Joint Distribution of Exchange Rates," World of economics and management / Vestnik NSU. Series: Social and Economics Sciences, Socionet, vol. 16(4), pages 20-38.
    • Handle: RePEc:nos:wjflnh:2016_4_02e
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    References listed on IDEAS

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    More about this item

    Keywords

    Archimedean copulas; currency; forecast; Frank copula; Gumbel-Hougaard copula; HAC; HKC; Joe BB1 copula; Marshall-Olkin’s algorithm; sampling via Kendall’s Distribution; Vine.;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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