Modeling dependencies between exchange rates using timeinvariant and time-varying copulas
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Date
2020-04-30
Authors
Adil, Asem
Journal Title
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Publisher
Nazarbayev University School of Sciences and Humanities
Abstract
In this project, the bivariate dependence structures between the Japanese Yen, Chinese Yuan, and
Hong Kong Dollar exchange rates against the US Dollar are studied by using time-invariant and
time-varying copulas. The period from 20.03.2010- 20.03.2020 is used for numerical simulations
and marginal distributions are determined by the ARMA-tGARCH approach. The optimal models
are chosen based on AIC values. Then the copulas are determined by the optimal choice of
marginal distributions and finally, copulas are numerically constructed and used to describe
dependencies between these three exchange-rates. Changes in the linear correlation coefficient
over time are studied using time-varying copulas. The R script is provided to implement this
procedure. The results suggest a positive dependence and greater lower-tail dependence between
pairs of Japanese Yen-Chinese Yuan and Chinese Yuan-Hong Kong Dollar exchange rates.
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Research Subject Categories::MATHEMATICS