Journal of Korean Institute of Industrial Engineers (대한산업공학회지)

Korean Institute of Industrial Engineers (대한산업공학회)
권호 표지

The Analysis of Tail Dependence Between stock Markets Using Extreme Value Theory and Copula Function

극단치 분포와 Copula함수를 이용한 주식시장간 극단적 의존관계 분석

  • Kim, Yong Hyun (Department of Industrial Engineering, Hanyang University) ;
  • Bae, Suk Joo (Department of Industrial Engineering, Hanyang University)
  • Published : 2007.12.31
Download PDF
⟨ Previous Next ⟩

Abstract

This article suggests the methods to investigate adverse movement across global stock markets arising from insolvency of subprime mortgage in U.S. Our application deals with asymptotic tail dependence of daily stock index returns (KOSPI, DJIA, Shanghai Composite) of three countries; Korea, U.S., and China, over specific period via extreme value theory and copula functions. Daily stock index returns among three countries show higher extremal dependence during the period exposed to systematic shock. We confirm that extreme value theory and copula functions have potential to well describe the extreme dependence between three countries' daily stock index returns.

Keywords

Acknowledgement

Supported by : 한국학술진흥재단

References

  1. Beatriz Vaz de Melo Mendes. (2006), 'A Bayesian analysis of clusters of extreme losses', Applied Stochastic models in business and industry, 22 155-167 https://doi.org/10.1002/asmb.625
  2. Carmona (2004), 'Statistical Analysis of Financial Data in S-Plus', Springer
  3. Chan, Ngai Hang and Hoi Ying Wong. (2005), 'Simulation Techniques in Financial Risk Management', Wiley Inter Science
  4. Edward W. Frees and Emiliano A. Valdez (1997), 'Understanding Relationships Using Copulas', 32nd Actuarial Research Conference
  5. Eric Zivot, and Jiahui, Wang. (2006), 'Modelling Financial Time Series with S-PLUS 2nd edition', Springer
  6. George Casella, and Roger, L. Berger. (2002), 'Statistical Inference 2nd edition', Duxbury
  7. Jun Yan. (2006), 'Enjoy the Joy of Copulas', Preprint submitted to Elsevier Science
  8. Kim, M.-J. and Shin, S. H. (2003). 'Estimation and Simulation of Copula Function: An Application to Daily Korean Treasury and A-Rate Corporate Spot Rates', Korean Journal of Futures and Options 11(2), pp. 103-131
  9. Kim, T.-H. and Zhao, Huijing. (2006). 'Extremal Dependence in Asia Pacific Exchange Markets', The Korean Journal of Financial Management 23(1), pp.193-225
  10. Kjersti Aas(2004.12), 'Modelling the dependence structure of financeal assets: A survey of four copulas', Norwegian Computing Center 19
  11. Mario R. Melchiori. (2003), 'Which Archimedean Copula is the right one?', (www.YieldCurve.com)
  12. Oh, Sekyung. and Moon, Seong Ju. (2006.4), Comparative Analysis of Portfolio Risk Measures based on EVT-Copula Approach during Financial Crises 증권학회지 제35권 3호
  13. Paul Embrechts, Alexander Mcneil, and Daniel, Straumann. (1999,7), 'Correlation and Dependence in Risk Management : Properties and Pitfalls', Working paper, Risklab, ETH Zurich
  14. Paul Embrechts, Claudia, Kluppelberg. and Thomas, Mikosch. (1997), 'Modelling Extremal Events for Insurance and Finance', Springer
  15. Paul Embrechts, F. Lindskog, and McNeal, A. J. (2001), 'Modelling Dependence with Copulas and Applications to Risk Management', Working paper, Risklab, ETH Zurich
  16. Roger B. Nelson. (2006), 'An Introduction to Copula 2nd edition', Springer