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Dynamic D-Vine Model

In: Dependence Modeling Vine Copula Handbook

Author

Listed:
  • Andréas Heinen

    (Departamento de Estadística, Universidad Carlos III de Madrid, 126 Calle de Madrid, 28903 Getafe (Madrid), Spain)

  • Alfonso Valdesogo

    (CORE. Voie du Roman Pays 34, B-1348 Louvain-la-Neuve, Belgium)

Abstract

We model the dependence structure of multivariate financial returns with a time-varying D-vine copula. Vine copulae are flexible multivariate copulae that are obtained by a hierarchical construction, with bivariate copulae as building blocks. We focus on D-vines, which are a subclass of vine copulae. In order to take into account the fact that the dependence structure between financial returns is not constant over time, we allow each of the possible bivariate copulae to be time-varying. We use two different data sets, six exchange rates and five Asian equity indices. We find that most of the time variation is found in the first tree of the D-vine. Moreover, while currencies can be adequately modeled with symmetric copulae, Asian equity indices require asymmetric copulae.

Suggested Citation

  • Andréas Heinen & Alfonso Valdesogo, 2010. "Dynamic D-Vine Model," World Scientific Book Chapters, in: Dorota Kurowicka & Harry Joe (ed.), Dependence Modeling Vine Copula Handbook, chapter 16, pages 329-353, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814299886_0016
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    Cited by:

    1. GRIGORIADIS, Vasilis & EMMANOUILIDES, Christos & FOUSEKIS, Panos, 2016. "The Integration Of Pigmeat Markets In The Eu. Evidence From A Regular Mixed Vine Copula," Review of Agricultural and Applied Economics (RAAE), Faculty of Economics and Management, Slovak Agricultural University in Nitra, vol. 19(1), pages 1-10, March.

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