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Analyzing Asymetric Dependence in Exchange Rates using Copula


  • Alexie Alupoaiei


In this paper I aimed to analyze the use of copulas in financial application, namely to investigate the assumption of asymmetric dependence and to compute some measures of risk. For this purpose I used a portfolio consisting in four currencies from Central and Eastern Europe. Due to some stylized facts observed in exchange rate series I filter the data with an ARMA GJR model. The marginal distributions of filtered residuals are fitted with a semi-parametric CDF, using a Gaussian kernel for the interior of distribution and Generalized Pareto Distribution for tails. To obtain a better view of the dependence among the four currencies I proposed a decomposition of large portfolio in other three bivariate sub-portfolios. For each of them I compute Value-at-Risk and Conditional Value-at-Risk and then backtest the results.

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  • Alexie Alupoaiei, 2010. "Analyzing Asymetric Dependence in Exchange Rates using Copula," Advances in Economic and Financial Research - DOFIN Working Paper Series 44, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
  • Handle: RePEc:cab:wpaefr:44

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    References listed on IDEAS

    1. Axel Börsch-Supan & Alexander Ludwig & Joachim Winter, 2006. "Ageing, Pension Reform and Capital Flows: A Multi-Country Simulation Model," Economica, London School of Economics and Political Science, vol. 73(292), pages 625-658, November.
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    Value-at-Risk; copula; Generalized Pareto Distribution;

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