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Mar 12

Asymmetric copula analysis

Posted by abiao at 17:58 | Code » Matlab | Comments(2) | Reads(9563)
http://www.mathfinance.cn/Grouped-T-copula-simulation-estimation/ shared a sample code for grouped-t copula simulation, further, several copula estimation and simulation package can be found. But, most of the case we talk about an exchangeble copula due to its relatively easier to explain, however, it has limited applications especially in the area of credit risk, or derivative markets where asymmetric dependence plays a crutial role. For example, a desire to maintain the competitiveness of Japanese exports to the United States. with German exports to the United States. would lead the Bank of Japan to intervene to ensure a matching depreciation of the yen against the dollar whenever the Deutsche mark (DM) depreciated against the U.S. dollar. Such rebalancing behavior would also lead to greater dependence during depreciations of the DM and yen against the dollar than during appreciations. It is certainly natural to enquire whether there are extensions that are not rigidly exchangeble.

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A scatter plot of the return of S&P 500 index and that of its implied volatility difference series is shown above, clearly the dependence is stronger in left-up corner than right-down corner.

Interested reader shall refer to the following papers and Matlab codes for detail:
Modelling Asymmetric Exchange Rate Dependence, 2006, International Economic Review, 47(2), 527-556.  
Paper (PDF), Abstract (HTML), Slides June01 (PDF), Code (MATLAB)

-- This paper was previously circulated as “Modelling Time-Varying Exchange Rate Dependence Using the Conditional Copula”, University of California, San Diego, Discussion Paper 01-09.
-- The Joe-Clayton and symmetrised Joe-Clayton copula density functions can be found here (PDF). Matlab functions for these can be found here.

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Dear abiao
Thank  you for this post, i will be very grateful if you can post the codes that you have used to produce the figure in the post ( is there a specific reference to cite it). Have you other references about the asymmetric dependence.
You could find codes on the page and the paper I listed.
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