Pair copula constructions to determine the dependence structure of treasury bond yields
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ArticlePublication details: Indian Institute of Management Bangalore Description: 216-227pSubject(s):
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IIMB Management Review. 27(4) December 2015Summary: We estimated the dependence structure of US Treasury bonds through a pair copula
construction. As a result, we verified that the variability of the yields decreases with a longer
time of maturity of the bond. The yields presented strong dependence with past values, strongly
positive bivariate associations between the daily variations, and prevalence of the Student’s t
copula in the relationships between the bonds. Furthermore, in tail associations, we identified
relevant values in most of the relationships, which highlights the importance of risk management
in the context of bonds diversification.
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We estimated the dependence structure of US Treasury bonds through a pair copula
construction. As a result, we verified that the variability of the yields decreases with a longer
time of maturity of the bond. The yields presented strong dependence with past values, strongly
positive bivariate associations between the daily variations, and prevalence of the Student’s t
copula in the relationships between the bonds. Furthermore, in tail associations, we identified
relevant values in most of the relationships, which highlights the importance of risk management
in the context of bonds diversification.
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