Selection Of The Copula-GARCH Family Model In The Dependence Analysis Between Financial Markets And Research Of Dynamic Copulas

The dependence between financial markets plays an important role in studying informationconducting mechanism, risk measure and financial investment.GARCH family models can reveal significant economic implications and perform well indescribing the conditional heteroskedasticity of financial time series. Copulas loosen the formof marginal distributions and have a good applicability. Therefore, this paper uses GARCHfamily models to describe the marginal distributions, and uses Copulas to build up their jointdistribution.This paper presents a four-step judging criteria to select the best GARCH family model,and uses the chi-square goodness of fit test to select the best Copula. Financial market is achanging market, so this paper also carries out studies on dynamic Copulas. Dynamic Copulashave two types: time-varying Copulas and Copulas with variable structures. For the researchof time-varying Copulas, this paper proposes a fixed window method with added estimates anda semi-fixed window method to estimate the time-varying parameters, and summarizes theforms of evolution equations of the time-varying parameters, and also researches the selectionof the best window length. For the research of Copulas with variable structures, this papergives a method for building a Copula model with variable structures based on the B-Galgorithm. Last, this paper compares the power in explaining financial risk between constantCopulas and dynamic Copulas by measuring VaR, and analyzes the influence the windowlength has on the power in explaining financial risk.