Multidimensional copula models for parallel development of the US bond market indices
Abstract
Stock and bond markets co{movements have been studied by many researchers.
The object of our investigation is the development of three U.S. investment grade
corporate bond indices. We concluded that the optimal 3D as well as partial pairwise
2D models are in the Student class with 2 degrees of freedom (and thus very heavy
tails) and exhibit very high values of tail dependence coecients. Hence the considered
bond indices do not represent suitable components of a well diversied investment
portfolio. On the other hand, they could make good candidates for underlying assets
of derivative instruments.
The object of our investigation is the development of three U.S. investment grade
corporate bond indices. We concluded that the optimal 3D as well as partial pairwise
2D models are in the Student class with 2 degrees of freedom (and thus very heavy
tails) and exhibit very high values of tail dependence coecients. Hence the considered
bond indices do not represent suitable components of a well diversied investment
portfolio. On the other hand, they could make good candidates for underlying assets
of derivative instruments.