Modeling exchange rate dependence at different time horizons

@inproceedings{Dias2010ModelingER,
  title={Modeling exchange rate dependence at different time horizons},
  author={Alexandra Dias and Paul Embrechts},
  year={2010}
}
Despite an extensive body of research, the best way to model the dependence of exchange rates remains an open question. In this paper we demonstrate a new approach which uses a flexible time-varying copula model. It allows the correlation between exchanges rates to be both conditional and time-varying. Applied to Euro/US dollar and Japanese Yen/US dollar, our results reveal a significantly time-varying correlation, dependent on the past return realizations. Simple time-invariant bivariate… CONTINUE READING
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