WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 12, 2015
Crude Oil Market Dynamics through TVEC-Copula-DCC-GARCH Models: Improving the Variance Reduction of Hedging Strategies.
Authors: ,
Abstract: As observed in several studies, crude oil returns are leptokurtic and skewed, thus the traditional assumption of normality may be unrealistic. However Copula functions are perfect to deal with this characteristics and TVEC model is very efficient in capturing market instability. This paper proposes to analyze the applicability of TVEC-Copula-DCC-GARCH methodology to model crude oil volatility. To provide an empirical test, we estimate an out-sample hedge during European Crisis, comparing its results and efficiency with other models analyzed in a previous study. Results show that the Copula-DCC-GARCH presents a superior fit, which promotes a more efficient and accurate hedge.
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Keywords: TVEC-Copula-DCC-GARCH, political and economic instability, crude oil regimes, dynamic volatility, improved hedge ratios
Pages: 388-399
WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 12, 2015, Art. #36