Pair copula constructions to determine the dependence structure of Treasury bond yields

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 associ...

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Published inIIMB management review Vol. 27; no. 4; pp. 216 - 227
Main Authors Righi, Marcelo Brutti, Schlender, Sergio Guilherme, Ceretta, Paulo Sergio
Format Journal Article
LanguageEnglish
Published Elsevier Ltd 01.12.2015
Elsevier
Subjects
Dependence structure
Pair copula construction
Treasury bonds
Pair copula construction
Treasury bonds
Dependence structure
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Summary: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.
ISSN:0970-3896
DOI:10.1016/j.iimb.2015.10.008