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Realized Copula

  • Fengler, Matthias

    ()

  • Okhrin, Ostap

    ()

We introduce the notion of realized copula. Based on assumptions of the marginal distributions of daily stock returns and a copula family, realized copula is defined as the copula structure materialized in realized covariance estimated from within-day highfrequency data. Copula parameters are estimated in a method-of-moments type of fashion through Höffding's lemma. Applying this procedure day by day gives rise to a time series of copula parameters that is suitably approximated by an autoregressive time series model. This allows us to capture time-varying dependency in our framework. Studying a portfolio riskmanagement application, we find that time-varying realized copula is superior to standard benchmark models in the literature.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1214.pdf
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Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1214.

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Length: 34 pages
Date of creation: May 2012
Handle: RePEc:usg:econwp:2012:14
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