Dynamics of parallel development of the bond market indices in the US market and its multidimensional copula models

Abstract

In this paper (which is a substantially extended version of a conference paper from SMTDA 2016 [10]) we focus our attention to 3-dimensional copula models of returns of indices of US financial markets (various bond indices have been investigated in the literature much less than stock indices). We have gained interesting experience in constructing Vine copula models. Although, for our particular data (comprising two triples of bond indices: US Investment Bond indices and US Corporate Bond indices), the global dominance of more traditional classes of elliptic (especially Student type) 3-dimensional copulas was demonstrated (and some conclusions concerning optimizations of investment portfolios can be based on fairly simple arguments), the optimal local Vine copulas helps to obtain more insight in the detailed development of the investigated triples of investments.