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Contagion determination via copula and volatility threshold models

Author

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  • Veni Arakelian
  • Petros Dellaportas

Abstract

We develop threshold models that allow volatilities and copula functions or their association parameters to change across time. The number and location of the thresholds is assumed unknown. We use a Markov chain Monte Carlo strategy combined with Laplace estimates that evaluate the required marginal densities for a given model. We apply our methodology to financial time series, emphasizing the ability to improve estimates of risk characteristics, as well as measuring financial contagion by inspecting simultaneous changes of dependence and volatility structures.

Suggested Citation

  • Veni Arakelian & Petros Dellaportas, 2012. "Contagion determination via copula and volatility threshold models," Quantitative Finance, Taylor & Francis Journals, vol. 12(2), pages 295-310, October.
  • Handle: RePEc:taf:quantf:v:12:y:2012:i:2:p:295-310
    DOI: 10.1080/14697680903410023
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    Cited by:

    1. Holger Fink & Yulia Klimova & Claudia Czado & Jakob Stober, 2016. "Regime switching vine copula models for global equity and volatility indices," Papers 1604.05598, arXiv.org.
    2. Raffaella Calabrese & Johan A. Elkink & Paolo Giudici, 2014. "Measuring Bank Contagion in Europe Using Binary Spatial Regression Models," DEM Working Papers Series 096, University of Pavia, Department of Economics and Management.
    3. repec:pal:jorsoc:v:68:y:2017:i:12:d:10.1057_s41274-017-0189-4 is not listed on IDEAS
    4. Holger Fink & Yulia Klimova & Claudia Czado & Jakob Stöber, 2017. "Regime Switching Vine Copula Models for Global Equity and Volatility Indices," Econometrics, MDPI, Open Access Journal, vol. 5(1), pages 1-38, January.

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