This paper examines the time-varying dependence structure of commodity futures portfolios based o... more This paper examines the time-varying dependence structure of commodity futures portfolios based on multivariate dynamic copula models. The importance of accounting for time-variation is emphasized in the context of the Basel traffic light system. We enhance the flexibility of this structure by modeling regimes with multivariate mixture copulas and by applying the dynamic conditional correlation model (DCC) to multivariate elliptical copulas. The most suitable dynamic dependence model in terms of in-sample and out-of sample valuation is the dynamic Student-t-Clayton mixture copula, followed by the dynamic Student-t copula, and the dynamic Gaussian-Clayton mixture. In comparison to the multivariate normal model, the dynamic Clayton copula also scales down significantly the number of VaR(99%) violations during the 2007/08 financial crisis period. The predictive performance of our multivariate dynamic copula models confirms its superiority over bivariate regime-switching copula models for various states of the economy.
This paper introduces multivariate dynamic copula models to account for the timevarying dependenc... more This paper introduces multivariate dynamic copula models to account for the timevarying dependence structure in asset portfolios. We firstly enhance the flexibility of this structure by modeling regimes with multivariate mixture copulas. In our second approach, we derive dynamic elliptical copulas by applying the dynamic conditional correlation model (DCC) to multivariate elliptical copulas. The best-ranked copulas according to both in-sample fit and out-of-sample forecast performance indicate the importance of accounting for time-variation. The superiority of multivariate dynamic Clayton and Student-t models further highlight that tail dependence as well as the capability of capturing asymmetries in the dependence structure are crucial features of a well-fitting model for an equity portfolio.
This paper examines the time-varying dependence structure of commodity futures portfolios based o... more This paper examines the time-varying dependence structure of commodity futures portfolios based on multivariate dynamic copula models. The importance of accounting for time-variation is emphasized in the context of the Basel traffic light system. We enhance the flexibility of this structure by modeling regimes with multivariate mixture copulas and by applying the dynamic conditional correlation model (DCC) to multivariate elliptical copulas. The most suitable dynamic dependence model in terms of in-sample and out-of sample valuation is the dynamic Student-t-Clayton mixture copula, followed by the dynamic Student-t copula, and the dynamic Gaussian-Clayton mixture. In comparison to the multivariate normal model, the dynamic Clayton copula also scales down significantly the number of VaR(99%) violations during the 2007/08 financial crisis period. The predictive performance of our multivariate dynamic copula models confirms its superiority over bivariate regime-switching copula models for various states of the economy.
This paper introduces multivariate dynamic copula models to account for the timevarying dependenc... more This paper introduces multivariate dynamic copula models to account for the timevarying dependence structure in asset portfolios. We firstly enhance the flexibility of this structure by modeling regimes with multivariate mixture copulas. In our second approach, we derive dynamic elliptical copulas by applying the dynamic conditional correlation model (DCC) to multivariate elliptical copulas. The best-ranked copulas according to both in-sample fit and out-of-sample forecast performance indicate the importance of accounting for time-variation. The superiority of multivariate dynamic Clayton and Student-t models further highlight that tail dependence as well as the capability of capturing asymmetries in the dependence structure are crucial features of a well-fitting model for an equity portfolio.
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Papers by Matthias Aepli