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Testing for structural changes in exchange rates' dependence beyond linear correlation
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Dias, Alexandra and Embrechts, Paul (2009) Testing for structural changes in exchange rates' dependence beyond linear correlation. In: Conference on Copulae and Multivariate Probability Distributions in Finance, Warwick Business Sch, Coventry, England, September 14-15, 2007. Published in: European Journal of Finance, Vol.15 (No.7-8). pp. 619-637. ISSN 1351-847X. doi:10.1080/13518470701705579
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Official URL: http://dx.doi.org/10.1080/13518470701705579
Abstract
In this paper, we test for structural changes in the conditional dependence of two-dimensional foreign exchange data. We show that by modeling the conditional dependence structure using copulae, we can detect changes in the dependence beyond linear correlation, such as changes in the tail of the joint distribution. This methodology is relevant for estimating risk-management measures, such as portfolio value-at-risk, pricing multi-name financial instruments, and portfolio asset allocation. Our results include evidence of the existence of changes in the correlation as well as in the fatness of the tail of the dependence between Deutsche mark and Japanese yen.
| Item Type: | Conference Item (Paper) | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HG Finance | ||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | European Journal of Finance | ||||
| Publisher: | Routledge Journals, Taylor & Francis Ltd. | ||||
| ISSN: | 1351-847X | ||||
| Official Date: | 2009 | ||||
| Dates: |
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| Volume: | Vol.15 | ||||
| Number: | No.7-8 | ||||
| Number of Pages: | 19 | ||||
| Page Range: | pp. 619-637 | ||||
| DOI: | 10.1080/13518470701705579 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access | ||||
| Conference Paper Type: | Paper | ||||
| Title of Event: | Conference on Copulae and Multivariate Probability Distributions in Finance | ||||
| Type of Event: | Conference | ||||
| Location of Event: | Warwick Business Sch, Coventry, England | ||||
| Date(s) of Event: | September 14-15, 2007 |
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