A Multivariate Integer Count Hurdle Model: Theory and Application to Exchange Rate Dynamics

Abstract

In this paper we propose a model for the conditional multivariate density of integer count variables defined on the set Z n . Applying the concept of copula functions, we allow for a general form of dependence between the marginal processes, which is able to pick up the complex nonlinear dynamics of multivariate financial time series at high frequencies. We use the model to estimate the conditional bivariate density of the high frequency changes of the EUR/GBP and the EUR/USD exchange rates. Keywords Integer count hurdle · Copula functions · Discrete multivariate distributions · Foreign exchange market JEL Classification G10 · F30 · C30 IntroductionIn this paper we propose a model for the multivariate conditional density of integer count variables. Our modelling framework can be used for a broad set of applications to multivariate processes where the primary characteristics of the variables are: first, their discrete domain spaces, each being the whole space Z; and second, their contemporaneous dependence.