Dependence Analysis And Volatility Spillover Between Crude Oil Price And Exchange Rate Based On Copula-CARR Model

Oil provides a powerful impetus for modern society’s production and life.The influences of oil price fluctuations on socio-economic development is obvious,and it draws more attention from scholars.However,the distribution of oil is highly centralized,which leads to the vast majority of oil trading through foreign trade.As a result,exchange rate plays an important role in the oil business.Study on the relationship between exchange rate and crude oil gradually become a hot research topic in recent years.Based on this consideration,this paper uses copula and CARR model to study correlation structure and relationship between crude oil and exchange rate.The key points and main achievements of this paper are listed as follows:1.This paper uses CARR model to study volatility spillover between crude oil and exchange rate.We established CARR model and ACARR model with a exogenous variable--CARRX model and ACARRX model to study the relationship of oil price and exchange rate.Empirical result shows that: volatility spillover exists between crude oil prices and the exchange rate,and compared with CARRX model,ACARRX model can better describe the characteristics of the crude oil price and exchange rate fluctuations,which means that their volatility is asymmetry.2.This paper uses Copula-CARR model and Copula-ACARR model to study correlation structure and relationship of NYMEX crude oil and U.S.Dollar Index,Brent crude oil and EUR/USD exchange rate.First,we established CARR models and ACARR models as marginal models.Then we use copulas to studied correlation structure between crude oil and exchange rate.In the part of empirical result,we found that Copula can be the optimal function for NYMEX crude oil and U.S.Dollar Index’s correlation structure,and the optimal function for Brent crude oil and EUR/USD exchange rate’s correlation structure.3.Based on the empirical results of Copula model,we use Copula-CARR model and Copula-ACARR model with structural breaks to study the correlation structure between NYMEX crude oil price and U.S.Dollar Index,Brent crude oil and EUR/USD exchange rate.Empirical results show that the change points are closely related to the actual economic events.