A Dynamic Copula Approach to Recovering the Index Implied Volatility Skew

Copula-MGARCH with continuous covariance decomposition

“…Specifying higher order dependencies between innovations in MGARCH models, the Copula-based MGARCH (C-MGARCH) model by Lee and Long (2009) has been applied successfully in practice (see, for instance, Fengler et al, 2012; for a reference of copula distributions see, e.g., Cherubini et al, 2004). As a particular merit, the C-MGARCH model allows to jointly specify the conditional covariance, the marginal distributions and the dependence of model innovations.…”