In this paper, we study the asymptotic behavior of the sequential empirical process and the sequential empirical copula process, both constructed from residuals of multivariate stochastic volatility models. Applications for the detection of structural changes and specification tests of the distribution of innovations are discussed. It is also shown that if the stochastic volatility matrices are diagonal, which is the case if the univariate time series are estimated separately instead of being jointly estimated, then the empirical copula process behaves as if the innovations were observed; a remarkable property. As a by-product, one also obtains the asymptotic behavior of rank-based measures of dependence applied to residuals of these time series models.

This study examined the tail dependency structure of sovereign credit risk and three global risk factors in BRICS countries using copulas approach, which is known for its ability to provide the “true” tail correlation based on the correct marginal distribution. The empirical results show that global market risk sentiment comoves with sovereign CDS spreads across BRICS countries under extreme market events, with Brazil having the highest co-dependency followed by China, Russia, and South Africa. Furthermore, oil price volatility is the second biggest risk factor correlated with sovereign CDS spreads for Brazil and South Africa while exchange rate risk exhibits very small co-dependence with sovereign CDS spreads under extreme market conditions dominated by tail events. On the contrary, exchange rate risk is the second largest risk factor co-moving with China and Russia’s sovereign CDS spreads while oil price volatility exhibits the lowest co-dependence to CDS in these countries. Between oil price and currency risk, evidence of single risk factor dominance is found for Russia where exchange rate risk is largely dominant. These results suggest that BRICS policymakers might consider financial sector regulations that mitigate risks spill-over such as targeted capital controls when markets are distressed.

Floods are a common natural disaster whose severity in terms of duration, water resource volume, peak and accumulated rainfall-based damage are likely to differ significantly for different geographical regions. In this paper, we first propose a novel hourly flood index (SWRI24−hr−S), derived from normalising the existing 24-hourly water resources index (WRI24−hr−S) in literature, to monitor flash flood risks on an hourly scale. The proposed SWRI24−hr−S is adopted to identify a flood situation and derive its characteristics, such as the duration (D), volume (V) and peak (Q). The comprehensive result analysis establishes the practical utility of SWRI24−hr−S in identifying flood situations at seven study sites in Fiji between 2014 and 2018 and deriving their characteristics (i.e., D, V, and Q). Secondly, this study develops a vine copula-probabilistic risk analysis system that models the joint distribution of flood characteristics (i.e., D, V, and Q) to extract their joint exceedance probability for the seven study sites in Fiji, enabling probabilistic flood risk assessment. The vine copula approach, particularly suited to Fiji’s study sites, introduces a novel probabilistic framework for flood risk assessment. The results show moderate differences in the spatial patterns of joint exceedance probability of flood characteristics in different combination scenarios generated by the proposed vine copula approach. In the worst-case scenario, the probability of any flood event occurring where the flood volume, peak and duration are likely to exceed the 95th-quantile value (representing an extreme flood event) is found to be less than 5% for all study sites. The proposed hourly flood index and the vine copula approach can be feasible and cost-effective tools for flood risk monitoring and assessment. The methodologies proposed in this study can be applied to other data-scarce regions where only rainfall data is available, offering crucial information for flood risk monitoring, assessment, and the development of effective mitigation strategies.

This paper investigates whether currency risk is priced differently in the different sectors (industrial, financial, and basic materials) of equity markets in a sample of developed United States of America (USA) and developing economies (Brazil, India, Poland, and South Africa). The paper makes use of the following techniques: (i) Univariate Autoregressive Fractionally Integrated Moving Average and Exponential General Autoregressive Conditional Heteroskedastic (ARFIMA-EGARCH), (ii) the Markov-Switching method (MS), and (iii) the Canonical Vine Copulas (C-Vine) techniques. Using a sample of daily data made of the foreign exchange rate against the domestic currency and equity market sectors; our findings show that there is an asymmetry effect between equities markets and the foreign exchange rate: there is a heterogeneous, strong, and positive dependence between the two. Higher equities prices are associated with depreciation of local currencies, according to US dollar (USD) exchange rates. In addition, we find that the selected emerging economies are pricing a positive and considerable currency risk. The pricing of currency risk has a varied effect in both regimes representing the states of the economy. In fact, when currency risk pricing has a beneficial impact on certain sectors of the economy, investors predict better returns.

Hybrid renewable energy systems (HRES), complemented by pumped hydropower storage (PHS), have become increasingly popular amidst the increase of renewable energy penetration. This con-figuration is even more prosperous in remote regions that are typically not connected to the mainland power grid, where the energy independence challenge intensifies. This research focuses on the design of such systems, from the perspective of establishing an optimal mix of renewable sources that takes advantage of their complementarities and synergies, combined with the versatility of PHS. However, this design is subject to substantial complexities, due to the multiple objectives and constraints to fulfill, on the one hand, and the inherent uncertainties as well, that span over all underlying processes, i.e., external, and internal. In this vein, we utilize a proposed HRES layout for the Aegean Island of Sifnos, Greece, to develop and evaluate a comprehensive simulation-optimization scheme in deterministic and, eventually, stochastic setting, revealing the design problem under the umbrella of uncertainty. In particular, we account for three major uncertain elements, namely the wind velocity (natural process), the energy demand (anthropogenic process), and the wind-to-power conversion (internal process, expressed in terms of a probabilistic power curve). Emphasis is also given to the decision-making procedure, which requires a thorough interpretation of the uncertainty-aware optimization outcomes. Finally, since the proposed PHS uses the sea as the lower reservoir, additional technical challenges are addressed.

Low-lying coastal communities are often threatened by compound flooding (CF), which can be determined through the joint occurrence of storm surges, rainfall and river discharge either successively or in close succession. The trivariate distribution can demonstrate the risk of the compound phenomenon more realistically rather than considering each contributing factor independently or in a pairwise dependency. Recently vine copula has been recognized as the highly flexible approach to constructing a higher dimensional joint density framework. In such construction, parametric class copula with parametric univariate marginal distributions is often involved. Such incorporation can lack flexibility due to parametric functions with prior distribution assumptions about their univariate marginal and/or copula joint density. This study introduces the vine copula approach in a nonparametric setting by introducing Bernstein and Beta kernel copula density in establishing trivariate flood dependence. The proposed model is applied to 46 years of flood characteristics collected on the west coast of Canada. The univariate flood marginal distribution is modelled using nonparametric kernel density estimation (KDE). The 2-D Bernstein estimator and Beta kernel copulas estimator are tested independently in capturing pairwise dependencies to establish D-vine structure in a stage-wise nesting approach in three alternative ways, each by permutating the location of the conditioning variable. The best-fitted vine structure is selected using goodness-of-fit (GOF) test statistics. The performance of the nonparametric vine approach is also compared with the vine constructed in the parametric and semiparametric fitting procedure. Investigation reveals that the D-vine constructed using Bernstein copula with normal KDE marginals nonparametrically performed well in capturing dependence of the compound events. Finally, the derived nonparametric model is used in the estimation of trivariate OR- and AND-joint return periods, further employed in estimating failure probability (FP) statistics. The trivariate return periods for the AND-joint case are higher than for the OR-joint case for the same flood combination. Also, the trivariate flood hazard results in a high-value FP than bivariate and univariate events. Ignoring the trivariate dependence could result in the underestimation of FP