TY - JOUR
T1 - Testing for structural changes in exchange rates' dependence beyond linear correlation
AU - Dias, Alexandra
AU - Embrechts, Paul
PY - 2009
Y1 - 2009
N2 - In this paper, we test for structural changes in the conditional dependence of two-dimensional foreign exchange data.We showthat 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.
AB - In this paper, we test for structural changes in the conditional dependence of two-dimensional foreign exchange data.We showthat 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.
KW - Change-point tests
KW - Conditional dependence
KW - Copula
KW - GARCH
KW - Risk management
UR - http://www.scopus.com/inward/record.url?scp=77649085229&partnerID=8YFLogxK
U2 - 10.1080/13518470701705579
DO - 10.1080/13518470701705579
M3 - Article
AN - SCOPUS:77649085229
SN - 1351-847X
VL - 15
SP - 619
EP - 637
JO - European Journal of Finance
JF - European Journal of Finance
IS - 7-8
ER -