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Workshop Three, Session One

Econometrics of Financial Markets

Presenter: Stefan Trueck


Using data from the European CO2 emission allowance market, a number of issues dealing with

  1. the stochastic modelling of financial time-series,
  2. the relationship between spot and futures prices and
  3. the dependence structure between financial variables
will be illustrated. For the first part of the workshop, the fit of various time-series models including AR, GARCH and regime-switching models will be investigated. Further issues like in-sample and out-of-sample fit of the model will be discussed using a forecasting study. Hereby, also the difference between using interval or density forecasts instead of point forecasts will be addressed. The second part of the workshop will then deal with the relationship between spot and futures prices. Relevant issues include the so-called cost-of-carry approach and the examination of risk premiums or convenience yields in the market. Finally, in the third part of the workshop, copula models and their use for modelling the dependence structure between different financial variables will be explored. In comparison to the coefficient of correlation, copulas offer a more flexible method for deriving the nature of dependence and provide an opportunity to appropriately fit the tails of multivariate distributions.