Gold Based On The Copula-GARCH Model

Since the international financial crisis in 2008,the trend of international mainstream currencies and commodities has fluctuated violently,uncertainty has gradually increased,risk appetite has shifted,and the international situation has become increasingly complex.Severe challenges arose for asset allocation of individuals,families,institutions and countries.During this period,the Federal Reserve launched four rounds of quantitative easing to promote economic development.The implementation of quantitative easing policy has caused the US dollar index to continue to fall,resulting in huge amplitudes of various asset prices denominated in US dollars.After 2014,the Federal Reserve gradually withdrew from quantitative easing,and the US dollar index rebounded from a low point,which in turn led to a greater amplitude of major asset prices priced in US dollars,while the price of gold dropped from high.As a traditional safe-haven asset,the excellent performance of gold in extreme events has made it popular among global investors and has become an important part of asset allocation.Japan’s geographical attributes,monetary policy,economic strength,and foreign exchange reserves have made the yen a mainstream currency in the international foreign exchange market.In the rapidly expanding currency carry trade,the Japanese yen,with both the advantages of low interest rates and high liquidity,has become a core integration product in the foreign exchange market.When a risk event occurs,foreign exchange investors will sell high-interest assets and pay the yen,which will cause the exchange rate of the yen to rise in a short period of time.Therefore,the yen is also an internationally-recognized safe-haven currency.This article selects the daily return data of gold and USD / JPY from 2009 to 2019,and uses the AR-GARCH-Copula model to fit the returns and volatility of the assets,and uses the best fitting model to construct the investment portfolio and determine trading strategies.The results show that:(1)Kendall,Pearson and Spearman coefficients are all negative,indicating that gold can be used as a USD / JPY hedge asset;(2)The DCC-t-Copula model has the best fitting effect on the correlation between the two assets,and the degree of correlation between the two assets is time-varying;(3)The dynamic correlation coefficient obtained by the DCC-GARCH model indicates that the correlation coefficient between gold and USD/JPY is negative in most time frames.Under extreme market conditions,negative correlation will weaken and positive correlation will increase.There is a long-term stable negative correlation between gold and USD/JPY.(4)Through the joint calculation results of the three judgment conditions of minimum variance,minimum Va R and minimum CVa R,the best asset weight ratio is 28.52% for gold and 71.48% for USD / JPY;(5)Through backtesting the validation data set,the results show that the cumulative return of the investment portfolio lies between the cumulative returns of the two single assets,and the maximum retracement is much lower than the two single assets.The maximum retracement has made a very smooth effect on volatility and risk optimization;(6)In the form of capital adequacy trading,the investment obtained by the lower take-profit threshold and the higher stoploss threshold performed optimally and has the strongest ability to resist risks and losses.In the form of margin trading,the lower the take-profit threshold and the lower stoploss threshold performed better than the others.