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Multivariate bilateral gamma, copulas, CoSkews and CoKurtosis

Author

Listed:
  • Dilip B. Madan

    (Robert H. Smith School of Business, University of Maryland, College Park, MD 20742, USA)

  • King Wang

    (��Derivative Product Strats, Morgan Stanley, 1585 Broadway, 5th Floor, New York, NY 10036, USA)

Abstract

Correlation graphs are introduced to delineate the levels observed in data and models for return and squared return correlations. A sample of 2048 representative pairs of equity assets is selected from a possible collection of 381,501 pairs by quantization. Five copulas are estimated and simulated on these pairs of returns, the Gaussian, t-copula, Clayton, Gumbel and Frank. Additionally, the multivariate bilateral gamma (MBG) model that introduces dependence via common time changes is also fit and simulated. Results of fit statistics on returns, CoSkew and CoKurtosis pairs are reported. The general ordering of the models is MBG, t-copula, followed by the Gaussian, Frank, Gumbel and Clayton copulas.

Suggested Citation

  • Dilip B. Madan & King Wang, 2022. "Multivariate bilateral gamma, copulas, CoSkews and CoKurtosis," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-20, June.
    • Handle: RePEc:wsi:ijfexx:v:09:y:2022:i:02:n:s2424786321500328
    DOI: 10.1142/S2424786321500328
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