A dynamic double asymmetric copula generalized autoregressive conditional heteroskedasticity model: application to China's and US stock market

作者：Fang, Yan^*; Liu, Ling; Liu, JinZhi

来源：Journal of Applied Statistics, 2015, 42(2): 327-346.

DOI：10.1080/02664763.2014.949639

• multivariate GARCH
• dynamic asymmetric correlation
• skewed-t copula
• volatility

Modeling the relationship between multiple financial markets has had a great deal of attention in both literature and real-life applications. One state-of-the-art technique is that the individual financial market is modeled by generalized autoregressive conditional heteroskedasticity (GARCH) process, while market dependence is modeled by copula, e.g. dynamic asymmetric copula-GARCH. As an extension, we propose a dynamic double asymmetric copula (DDAC)-GARCH model to allow for the joint asymmetry caused by the negative shocks as well as by the copula model. Furthermore, our model adopts a more intuitive way of constructing the sample correlation matrix. Our new model yet satisfies the positive-definite condition as found in dynamic conditional correlation-GARCH and constant conditional correlation-GARCH models. The simulation study shows the performance of the maximum likelihood estimate for DDAC-GARCH model. As a case study, we apply this model to examine the dependence between China and US stock markets since 1990s. We conduct a series of likelihood ratio test tests that demonstrate our extension (dynamic double joint asymmetry) is adequate in dynamic dependence modeling. Also, we propose a simulation method involving the DDAC-GARCH model to estimate value at risk (VaR) of a portfolio. Our study shows that the proposed method depicts VaR much better than well-established variance-covariance method.

• 出版日期2015-2-1
• 单位对外经济贸易大学