Research On The Risk Contagion Effect Of Financial Market Based On Pair-Copula Model

With the deepening of economic globalization,the financial risk contagion has become more and more fierce.In 2017,the US subprime mortgage crisis spread to the whole world,and the financial risk contagion effect has been widely concerned.This paper studies the Standard & Poor's index by constructing the time series Pair-Copula model.Through the risk contagion effect between the index and the Shanghai Stock Exchange financial market,appropriate measures can be taken to avoid risks before the stock market has a serious tail infection.The specific research contents are as follows:(1)Firstly,the daily yield series data of Standard & Poor's index,Nikkei index and Shanghai Composite Index are selected,and the edge distribution of three stock market yield series is described by GARCH-t(1,1)model and estimated by maximum likelihood method.The parameters were tested by K-S test.The maximum likelihood estimation method was used to estimate the parameters of Pair-Copula function.The empirical results show that: SJC-Copula under Canonical rattan structure can better describe the asymmetric between financial markets.The tail-dependent relationship,in which the upper and lower tail dependence coefficients between the Standard & Poor's index and the Shanghai Composite Index are smaller than the upper and lower tail dependence coefficients of other stock markets,indicating that the impact of US stock market volatility on the Shanghai Composite Index is relatively weak.(2)Based on the Pair-Copula model,the daily yield series data of the Standard &Poor's index,the Nikkei index and the Shanghai Composite Index before and after the subprime mortgage crisis are studied.Firstly,the GARCH(1,1)model is used to describe the edge distribution of each yield series,and the maximum likelihood estimation is used.The method and K-S test method are used to estimate the parameters of the edge distribution function and test the fitting.The parameters of the mixed Copula under Canonical vine structure are estimated by IFM estimation.The empirical results show that the mixed Copula under Canonical vine structure can better describe The tail dependence between financial markets,in which the tail-dependence relationship between the three stock markets before the subprime mortgage crisis and the subprime mortgage crisis changed from the last tail to the lower tail.The tail dependence coefficient between the Standard & Poor's index and the Shanghai Composite Index is relatively high.Small,indicating that the risk-contagion relationship between China and the US stock market is relatively weak,while the Chinese and Japanese stock markets have a significant increase in the tail-dependentcoefficient after the crisis,so the sub-prime crisis has strengthened the link between China and Japan.