Date: 2012-10-05

Time: 14:30-15:30

Location: BURN 1205

Abstract:

Using only bivariate copulas as building blocks, regular vines(R-vines) constitute a flexible class of high-dimensional dependence models. In this talk we introduce a Markov switching R-vine copula model, combining the flexibility of general R-vine copulas with the possibility for dependence structures to change over time. Frequentist as well as Bayesian parameter estimation is discussed. Further, we apply the newly proposed model to examine the dependence of exchange rates as well as stock and stock index returns. We show that changes in dependence are usually closely interrelated with periods of market stress. In such times the Value at Risk of an asset portfolio is significantly underestimated when changes in the dependence structure are ignored.

Speaker

Jacob Stöber is a PhD candidate at the Technische Universität München. He is currently visiting Duke University.