23 research outputs found
Simplified Pair Copula Constructions --- Limits and Extensions
So called pair copula constructions (PCCs), specifying multivariate
distributions only in terms of bivariate building blocks (pair copulas),
constitute a flexible class of dependence models. To keep them tractable for
inference and model selection, the simplifying assumption that copulas of
conditional distributions do not depend on the values of the variables which
they are conditioned on is popular. In this paper, we show for which classes of
distributions such a simplification is applicable, significantly extending the
discussion of Hob{\ae}k Haff et al. (2010). In particular, we show that the
only Archimedean copula in dimension d \geq 4 which is of the simplified type
is that based on the gamma Laplace transform or its extension, while the
Student-t copula is the only one arising from a scale mixture of Normals.
Further, we illustrate how PCCs can be adapted for situations where conditional
copulas depend on values which are conditioned on
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Regime Switching Vine Copula Models for Global Equity and Volatility Indices
For nearly every major stock market there exist equity and implied volatility indices. These play important roles within finance: be it as a benchmark, a measure of general uncertainty or a way of investing or hedging. It is well known in the academic literature that correlations and higher moments between different indices tend to vary in time. However, to the best of our knowledge, no one has yet considered a global setup including both equity and implied volatility indices of various continents, and allowing for a changing dependence structure. We aim to close this gap by applying Markov-switching R-vine models to investigate the existence of different, global dependence regimes. In particular, we identify times of “normal” and “abnormal” states within a data set consisting of North-American, European and Asian indices. Our results confirm the existence of joint points in a time at which global regime switching between two different R-vine structures takes place