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An Econometric Study of Vine Copulas

We present a new recursive algorithm to construct vine copulas based on an underlying tree structure. This new structure is interesting to compute multivariate distributions for dependent random variables. We proove the asymptotic normality of the vine copula parameter estimator and show that all vine copula parameter estimators have comparable variance. Both results are crucial to motivate any econometrical work based on vine copulas. We provide an application of vine copulas to estimate the VaR of a portfolio, and show they offer significant improvement as compared to a benchmark estimator based on a GARCH model

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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 10040.

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Length: 19 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:mse:cesdoc:10040
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  1. Lorán Chollete & Andréas Heinen & Alfonso Valdesogo, 2009. "Modeling International Financial Returns with a Multivariate Regime-switching Copula," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 7(4), pages 437-480, Fall.
  2. Xiaohong Chen & Yanqin Fan & Andrew J. Patton, 2004. "Simple tests for models of dependence between multiple financial time series, with applications to U.S. equity returns and exchange rates," LSE Research Online Documents on Economics 24681, London School of Economics and Political Science, LSE Library.
  3. Aas, Kjersti & Czado, Claudia & Frigessi, Arnoldo & Bakken, Henrik, 2009. "Pair-copula constructions of multiple dependence," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 182-198, April.
  4. Andrew Patton, 2004. "Modelling Asymmetric Exchange Rate Dependence," Working Papers wp04-04, Warwick Business School, Finance Group.
  5. Dominique Guegan & Pierre-André Maugis, 2008. "New prospects on vines," Documents de travail du Centre d'Economie de la Sorbonne b08095, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2010.
  6. Andrew J. Patton, 2008. "Copula-Based Models for Financial Time Series," Economics Series Working Papers 2008fe21, University of Oxford, Department of Economics.
  7. Fischer, Matthias J. & Köck, Christian & Schlüter, Stephan & Weigert, Florian, 2007. "Multivariate Copula Models at Work: Outperforming the desert island copula?," Discussion Papers 79/2007, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Statistics and Econometrics.
  8. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
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