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Realized copula

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  • Fengler, Matthias R.
  • Okhrin, Ostap

Abstract

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 high-frequency data. Copula parameters are estimated in a method-of-moments type of fashion through Hoeffding'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 risk-management applica- tion, we find that time-varying realized copula is superior to standard benchmark models in the literature.

Suggested Citation

  • Fengler, Matthias R. & Okhrin, Ostap, 2012. "Realized copula," SFB 649 Discussion Papers 2012-034, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2012-034
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    Cited by:

    1. De Lira Salvatierra, Irving & Patton, Andrew J., 2015. "Dynamic copula models and high frequency data," Journal of Empirical Finance, Elsevier, vol. 30(C), pages 120-135.
    2. Fengler, Matthias R. & Gisler, Katja I.M., 2015. "A variance spillover analysis without covariances: What do we miss?," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 174-195.
    3. Ostap Okhrin & Anastasija Tetereva, 2017. "The Realized Hierarchical Archimedean Copula in Risk Modelling," Econometrics, MDPI, vol. 5(2), pages 1-31, June.
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    5. Dickhaus, Thorsten & Gierl, Jakob, 2012. "Simultaneous test procedures in terms of p-value copulae," SFB 649 Discussion Papers 2012-049, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    6. Jean-David Fermanian, 2017. "Recent Developments in Copula Models," Econometrics, MDPI, vol. 5(3), pages 1-3, July.

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    More about this item

    Keywords

    realized variance; realized covariance; realized copula; multivariate dependence;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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