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322
Int. J. Financial Markets and Derivatives, Vol. 3, No. 4, 2014
Copulas and dependence structures: evidences from

Indias and Asian rubber futures markets
Debasish Maitra*
Institute of Management Technology,
Ghaziabad, India
E-mail: debasishmaitra@gmail.com
*Corresponding author
Kushankur Dey
Indian Institute of Management,
Wing- 15J, Main Block,
Vastrapur, Ahmedabad 380 015, Gujarat, India
E-mail: kushankurd@iimahed.ernet.in
Abstract: This paper attempts to model the dependence structures of Indias
and Asian natural rubber futures (derivatives) markets. Though copula-based
literature in commodity markets appears to be limited, it can capture
non-linearity unlike simple correlation measures, and thus, the former
can estimate magnitude of dependence adequately. This study considers
exchange-level futures price across NMCE (India), SHFE (China), TOCOM
(Japan) and AFET (Thailand) from July 2006 to April 2010. Analysis shows
that relatively a high degree of dependence has been observed between Indias
and Chinas markets in comparison to other markets. This paper sheds light on
the dominant role of copulas for attaining the methodological congruence of
dependence-structure modelling.
Keywords: rubber; derivatives; dependence structure; India; Asia.
Reference to this paper should be made as follows: Maitra, D. and Dey, K.
(2014) Copulas and dependence structures: evidences from Indias and Asian
rubber futures markets, Int. J. Financial Markets and Derivatives, Vol. 3,
No. 4, pp.322357.
Biographical notes: Debasish Maitra has pursued fellow programme in rural
management at the Institute of Rural Management Anand (IRMA). He is
currently employed with the Institute of Management Technology, Ghaziabad
as an Assistant Professor. His current research interests are commodity
derivatives, market microstructure and rural banking in India. He has presented
his works in different national and international conferences. He has published
papers in both national and international journals, and one book chapter.
Kushankur Dey is a Post-Doctoral Fellow in the Center for Management in
Agriculture of the Indian Institute of Management, Ahmedabad. Before joining
IIMA, he was a Kolkata-based Food and Agribusiness Consultant for a year
and has undertaken assignments in commodities markets, agribusiness supply
chain or/and post-harvest management of (agricultural) commodities. He has
served as an Assistant Professor at T.A. Pai Management Institute, Manipal
between 2013 and 2014. He is a Fellow (equivalent to PhD) in Rural
Management of IRMA. He has several publications to his credit including
journal articles, cases, book chapters/conference proceedings and popular
articles.
Copyright 2014 Inderscience Enterprises Ltd.
Copulas and dependence structures
323
This paper is a revised and expanded version of a paper entitled Correlation

with copula for modelling dependence structure of rubber futures markets
presented at the Financial Innovations and Changes for Survival and Growth
(FINCON), Management Development Institute, Gurgaon (in collaboration
with the School of Business, University of Connecticut, USA), 78 January
2011.
Introduction
Indias rubber futures market has been a subject of controversy ever since National Multi
Commodity Exchange (NMCE) initiated trading in 2003. India is the second largest
consumer of natural rubber (NR) after China, while it ranks fourth in production at the
level of 8.17 lakh (1 lakh = 0.1 million) metric tonnes (mt) during 20082009
(Department of Statistics and Planning, Rubber Board, 2010). Several stakeholders are
involved in this market, namely Indias Rubber Dealers Federation, Automotive Tyre
Manufacturers Association (ATMA), Indias Rubber Growers Association, Association
of Rubber Producing Countries, Rubber Board, Forward Markets Commission (FMC)
and All India Rubber Industries Association. A key stakeholder is ATMA that is the final
consumer of finished NR. Tyre manufacturers consume more than 60% of Indias
domestic NR production. They also import rubber for consumption sometimes through
the duty free route. Participation of ATMA members in Indias rubber futures market has
been minimal right since its inception. In addition, ATMA has been petitioning the
Indias Government over these years to suspend rubber futures trading due to high spikes
in price level. At present, NMCE imposes a 4% final price limit on daily basis on rubber
futures trading (National Multi Commodity Exchange, 2011).
Rubber futures prices in India depends on several factors, viz. domestic and global
rubber production, crude oil prices, consumption in countries like China, synthetic rubber
consumption and rubber futures and spot prices in the international markets among
others. Futures and spot prices reflect many of these factors. In addition, price
information from all the major Asian rubber markets is available before Indias market
opens for futures trading. Thus, a great level of dependence might exist between Indias
and other Asian markets. Moreover, Indias rubber futures market might be expected to
be therefore efficient.
Conventional econometric techniques namely, co-integration, vector error correction
model (VECM), vector autoregression moving average, and multivariate generalised
autoregressive heteroscedasticity (M-GARCH) models including constant and dynamic
conditional correlations have been used in past studies (Chang et al., 2010). To test
rubber futures efficiency, one may employ co-integration test using Pantula and
modified Pantula principle (Johansen and Juselius, 1990; Hansen and Juselius, 1995;
Hjelm and Johansson, 2005), VECM, weak exogeneity test and Granger causality in
order to explore both long- and short-run price/return relationships (Engle and Granger,
1987). However, these techniques have limitations mainly because of assumptions of
normality or conditional normality and linearity. It is interesting to note that commodity
or financial markets are asymmetric with respect to their price or/and return series.
Therefore, conditional normality and linearity does not hold while measuring dependence
between several markets. A few studies establish that copula-based models are superior
in comparison to linear correlation-based measures to model the dependence (Embrechts
324
D. Maitra and K. Dey
et al., 2002; Weiss, 2010). Hence, to relax above assumptions, we attempt to employ
copula-based measures that can capture the complete dependence structures between
these Asian markets.
In this backdrop, this paper attempts to address mainly three queries such as:
a
Is Indias rubber futures market correlated with Asian markets, namely Japan,
Thailand, and China?
Which of these futures markets above co-move with Indias market greatly?
Do copulas capture nonlinearity between above markets or do correlations as

measures of dependence change considerably after employing copulas?
The remainder of paper proceeds as follows. Section 2 briefs about Asian and Indias
rubber markets. Section 3 narrates about the various copulas operationalised in this study.
Section 4 reviews the related work on dependence measures specific to rubber markets.
Section 5 describes data and methodology. Section 6 presents results and subsequently,
interprets them. Section 7 concludes.
Rubber markets and futures trading
NR is one of the most important agro-based industrial raw materials in the world. Fluid of
some specific plants (Haevea sp.) yields NR. Synthetic rubber is also available in the
market. Commercial forms of rubber are, namely sheets, crepes, block rubber and
preserved latex concentrates. Rubber has wide use in manufacturing sector like in Tyre
industry, rubber stick, latex glove and condom production. Asia is the most important
market for NR production and consumption. Asia accounts for more than 96% of total
rubber production in the world during 20112012. Global NR production reached more
than 9.5 lakh mt in 2010. Key Asian rubber markets comprise Thailand, Indonesia, India,
China, Malaysia, and Vietnam. Nonetheless, trading in Japans and Chinas futures
markets influence and dictate international rubber prices.
Tradable rubber varieties in futures platform are mostly variants of ribbed smoked
sheet (RSS) like RSS-1, RSS-3 and RSS-4. RSS-4 outperforms other varieties in rubber
futures due to its production and relatively high trade acceptance among international
players. Some of the major Asian rubber futures exchanges are Tokyo Commodity
Exchange (TOCOM) and Osaka Mercantile Exchange (OME) in Japan, Singapore
Commodity Exchange (SICOM) in Singapore, Shanghai Commodity Exchange (SHFE)
in China, Agricultural Futures Exchange of Thailand (AFET) in Thailand and NMCE in
India. Spot markets are also well developed in these countries.
In India, NMCE is the largest rubber futures trading exchange. NMCE witnessed a
cumulative physical delivery of 49,753 mt of NR from 2003 to 2008. On May 7 2008,
Government of India suspended rubber futures trading for consecutive four months.
Trading resumed from the end of 2008. Rubber spot markets operate at Kottayam, Kochi,
Kozhikode and Kannur which are cities in the state of Kerala in southern India.
Appendix 1 (refer to Table 1) presents the contract specifications of rubber futures traded
in NMCE, India. Table 1 reports trade volume and value of RSS-4 at NMCE, India.

Table 1
Volume
Value
325
Trade volume (in lot and lakh) and value (INR crore) of RSS-4 at NMCE
20082009
2.22
1,964
20092010
11.62
14,246
20102011
23.57
47,693
20112012
14.07
30,132
Note: # 1 lot = 1,000 kg or 1 metric ton.

Source: National Multi Commodity Exchange (2012)
Table 1 shows that rubber futures trade in terms of value and volume witnessed
significant growth rate until 20102011. However, in 20112012, negative growth rate
(45.92%) in trade value and volume had been reported (National Multi Commodity
Exchange, 2012). It may be mainly because of price fluctuations that had been observed
in the market during this year. This was a major trigger for the present study. If futures
prices fluctuated more than the expected levels, it would prevent participation in the
market and result in reduction of trade volume and value. This indirectly, reflects on the
efficiency of the market and also points to the nature of dependence of Indias futures
market with the leading rubber futures markets of the world. Thus, this study seeks to
focus on modelling dependence structures between Indias and Asian NR futures
markets.
Copula-definition and operationalisation
One of the most robust approaches for modelling a multivariate distribution is to select a
class of copulas which consistently combine the marginal and joint distribution. By
employing the copula theory, the effects of dependence and marginal distribution in order
to describe the joint distribution of asset returns through the selection of a suitable copula
are segregated. The definition of a copula is as follows:
3.1 Definition of copula

A d-dimensional copula is a function C : [0,1] a [0,1], which has the following
properties (Cherubini et al., 2004):
C(u) increases in each component uk with k {1, , d}. For every vector, u [0, 1]
d, C(u) = 0, if at least one coordinates of the vector u is 0 and C(u) = uk, if all the
coordinates of u are equal to 1 except the kth one.
For every a, b [0, 1]d with a b, given a hypercube.
B = [a, b] = [a1 b1] [a2 b2] [an bn], whose vertices lie in the domain of
C, its volume Vc(B) 0.
This definition states that a copula can be thought as a multivariate uniform distribution
(well-behaved) function with uniformly distributed margins. Under differentiable
assumption, copulas density can be obtained by:
C ( u1 ,K u2 ) = d C ( u1 ,K u2 ) u1 ,K u2
(1)
326
The following theorem describes the mechanics behind the usage of copulas for coupling
a multivariate distribution.
Theorem 1: Sklars (1959) theorem
Let H be a d-dimensional distribution function with margins F1, , Fd. Then, there exists
a d-dimensional copula C such that, for x Rd we have:
H ( x1 ,K xd ) = C { F1 ( x1 )K Fd ( xd )}
Moreover, if F1, , Fd are continuous, then C is unique and in discrete case, C is

uniquely defined on range Fx Fy.
Sklars theorem shows that a joint distribution can be used to separate a marginal
distribution and dependence structure. The basic idea of dependence modelling through a
copula is to enable the separation of the univariate margins and dependence structure,
with the latter being completely viewed by a copula function (Joe, 1997; Nelsen, 1999).
Another important property of copula is that it is invariant under strictly increasing
transformations, i.e.,
Cx1 ,K xd = Ch1 ( x1 ) ,K hd ( xd ) , if x hn ( x) > 0
(2)
The above property states that the dependence structure, which is described by a copula
among random variables, remains unchanged under increasing and continuous
transformation of the margins. This invariance property indicates that copulas provide the
natural framework required to study or investigate dependence properties, which remain
invariant under increasing transformation of the margins.
The advantage of employing a copula to model joint density is that, the copula
enables modelling of co-movement among variables with a tail dependence index.
Generally, correlation is considered as the measure of dependencies between two random
variables, however, it only captures the degree of liner relationship not the structure of
the dependence, i.e., it does not entirely describe the dependence structure between the
variables. In order to avoid this problem, two additional dependence measures are
commonly used in empirical analysis. These are Spearmans rank correlation and
Kendalls tau. Both these measures are expressed as a function of the copula, which
makes them more feasible in practical application. Kendalls tau and Spearmans rho are
defined as follows:
1
=4
C (u , u )dc (u , u ) 1
0
s = 12
C (u , u ) dc (u , u ) 3
0
(3)
(4)
Theorem 2: Tail dependence

Assume that (X1, X2) be a bivariate vector of continuous random variables with marginal
distribution, F1 and F2. The coefficients of upper U and lower L tail dependence,
provided that the limit U [0, 1] and L [0, 1] exist, are respectively given by the
following expressions:
U := limu 1 P X 2 > F2 1 (u ) X 1 > F11 (u )
(5)
L := limu 1 P X 2 F2 1 (u ) X1 F11 (u )
327
(6)
If U = 0, then the two random variables (X1, X2) are said to be asymptotically
independent in the upper tail. If U [0, 1], then two random variables are said to be
asymptotically dependent in the upper tail. We can express the upper and lower tail
dependence using copula as follows, respectively.
u := limu 1 [1 2u + C (u , u ) 1 u ]
(7)
L = limu 1 C (u , u ) u
(8)
As mentioned earlier, these are two classes of copula-elliptical copula and Archimedean
copula. The elliptical copula is generated from the multivariate distribution function, and
the Gaussian copula (or normal) and t copula belongs to this class. The elliptical copula is
not adequate and robust for modelling the dependence structure of a financial return or a
commodity return series. The reasons are enumerated as follows:
The parameter of the Gaussian copula (or normal) is a linear correlation which fully
characterises the dependence of random variables.
The tail dependence of the Gaussian copula (or normal) is one, only if the correlation
is one, otherwise it is zero. This indicates that the Gaussian copula captures tail
dependence of random variables only for perfectly correlated case (either +1 or 1).
The parameters of t copula are in linear correlation, with the same role as that of the
Gaussian copula (or normal) and the degree of freedom (v) which attributes to the
co-movement of random variables. A low degree of freedom corresponds to a strong
co-movement in the tail area. However, the co-movement generated by the t copula
is symmetrical, which signifies that implies that the tail dependence is identical in
the upper and lower tail areas. The tail index of the t copula can be expressed as:
U = L = 2tv +1{ v + 1 1 p / 1 + p}.
Archimedean copulas are derived employing a generator and have various names based
on the names of their respective proponents. The well-known Archimedean copulas are,
namely, Gumbel (1960), Clayton (1978) and Frank (1979). It is noteworthy to mention
that the Gumbel copula also belongs to the extreme value family and therefore is
extensively used in risk modelling. The Archimedean copula is considered as a good
option for modelling financial/commodity assets because it can be used to reflect a series
of dependence structures including extreme co-movement in the tail area among
variables.
Archimedean copula is generally expressed in the following form:
C (u, v) = 1 [ (u ) + (v) ]
(9)
where is a generator of Archimedean copula and 1 is the inverse function of . The

generator is a function :1 R + that is continuous, strictly decreasing and convex,
and satisfies (1) = 0.
328
3.2 Parameter estimations in copulas

Elliptical copulas are simply the copulas of elliptical distributions. The most commonly
used elliptical distributions are the multivariate normal, and students t copula.
3.3 Elliptical copulas

3.3.1 Normal copula
The normal copula is an elliptical copula expressed by:
1 ( u ) 1 ( v )
C (u, v) =
1
2 (1 2 )
1/2
2
2
x 2 xy y
exp
dxdy
2
2 (1 )
(10)
where F1 is the inverse function of the univariate standard normal distribution function,
and , is the linear correlation coefficient, is the copula parameter.
The relationship between Kendalls tau and the normal copula parameter is given
by:
( X ,Y ) = sin ( / 2 )
3.3.2 Students t copula

The student t copula is an elliptical copula expressed as:
C ,v = (u, v) =
t 1v ( u )
t 1v ( v )
1
2 (1 2 )
1/ 2
x 2 2 xy y 2
1 +
v (1 2 )
( v + 2) 2
dxdy
(11)
where v (degree of freedom) and (linear correlation coefficient) are the parameters of
the copula. The relationship between Kendalls tau and t copula is given by:
( X ,Y ) = sin ( / 2 )
3.3.3 Archimedean copulas

These are important class of copulas-because of the ease with which they can be
constructed and the properties they posses which are good enough for financial return
modelling or risk management. Archimedean copulas are expressed by the general form
written in equation (9).
It may be noted that is the generator of the copula. The general relationship
between Kendalls tau, and the generator of an Archimedean copula (t ) for a
bivariate dataset can be expressed as:
1
= 1+ 4
(t )
(t )dt
(12)
For example, the relationship between Kendalls tau, and the Clayton copula parameter,
for a bivariate set is given by:
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2
.
1
There are three Archimedean copulas in common use: the Clayton, Frank, and Gumbel.
3.3.4 Clayton copula

The Clayton copula is an asymmetric Archimedean copula, exhibiting greater
dependence in the negative tail than in the positive. This copula is expressed by:
C (u , v) = max ( u + v 1)
1/
,0
(13)
and its generator is:
(t ) =
( t 1) where (1, ) {0}
The relationship between Kendalls tau and the Clayton copula parameter is
expressed by:
2
1
3.3.5 Frank copula

The Frank copula is a symmetrical Archimedean copula which is given by:
C (u , v) =
( e u 1)( e v 1)
ln 1 +

e 1
(14)

exp( t ) 1
exp( ) 1
(t ) = ln
where (, ) / {0}
The relationship between Kendalls tau and the Frank copula parameter is given
by:
[ D1( ) 1}
D1 ( ) =
1
,
4
dt
e 1
t
Is a Debye function.
3.3.6 Gumbel copula

The Gumbel copula/Gumbel-Hougard copula is an asymmetric Archimedean copula,
exhibiting greater dependence in the positive tail than in the negative. This copula is
expressed by:
330

1/
C (u , v) = exp ( ln u ) + ( ln v )
(15)
(t ) = ( ln t )
where (1, )
The relationship between Kendalls tau and the Gumbel copula parameter is
expressed by:
1
1
3.4 Likelihood measures for estimating parameters

To implement copula for empirical analysis, it is required to estimate copula parameters
and select the best copula class according to the given data. Estimation is conducted via
maximisation of likelihood function given a specific copula [Kim and Bang, (2009),
p.126]. There are three methods for estimating copula parameters full maximum
likelihood (FML), inference function for margin (IFM), and canonical maximum
likelihood (CML). The FML method is also known as the perfect likelihood method,
which maximises the copula and marginal parameters simultaneously. Typically, it is
sometimes difficult to achieve numerical solutions employing this method, if there are
numerous parameters in the marginal distribution and copula [Kim, (2010), p.83]. The
IFM and CML are two-stage estimation methods, which separate the marginal
distribution and copula parameters (Cherubini et al., 2004). First, the marginal
distributions Fx and Fy are estimated based on parametric models. Afterwards, given the
estimates Fx and Fy, a pseudo sample of observations generated from the copula can be
determined as follows:
( ui , i ) = {Fx ( X i ) , Fy ( yi )} , i = 1,K , n
Subsequently, for a specified copula C(u, v, ) with an unknown parameter , the
log-likelihood is given by: ( , ui , i ) = ln c(ui , i , ) and is maximised using numerical
methods. Under the standard regulatory condition, this estimation is consistent and
asymptotically normally distributed (Joe, 1997). Except for the first stage, the other
stages in the CML method are the same as those in the IFM method. The first stage in the
CML method employs empirical distribution and thus, it is not needed to specify the
marginal distribution. In this paper, FML method for estimating parameters is employed
which has imposed certain restrictions unlikely than those of other methods, CML and
IFM.
The copula selection is conducted in order to minimise the sum square deviation
between the empirical and theoretical copula. In addition, goodness-of-fit tests and
likelihood-based selection measures like Akaike Information Criterion (AIC), Schwarz
Information Criterion (SIC) and Hannan-Quinn Information Criteria (HQIC) are also
employed to select the best fitted copula (Nelsen, 1999). But, SIC is used to fit the copula
to data for a number of observations (n 20). Therefore, SIC is the strictest in penalising
loss of degree of freedom by having more parameters in the fitted model. For, n 40 the
AIC is the least strict of the three and the HQIC lies somewhere between SIC and AIC.
331
From the distribution point of view, Denuit and Lambert (2005) proposed a
continuousation method to overcome the (discrete) probability integral transformation.
The probability integral transformation states that if the random variable Y is a
continuous variable with cumulative distribution F, then Z = F(Y) is uniformly distributed
on [0, 1]. However, the probability integral transformation with discrete random variable
does not yield satisfactory result. It means that Z is not uniformly distributed on [0, 1] in
a discrete case. Denuit and Lamberts (2005) proposition seems invaluable because the
continuousation does not alter the concordance between the pairs of random variables.
The main idea of continuousation is to create a new random variable X*, by adding a
discrete variable X a continuous variable U valued in [0, 1], independent of Y, with a
strictly increasing cdf, sharing no parameter with the distribution of X, such as the
uniform [0, 1] that is,
X * = X + (U 1)
If X is a discrete variable with probability mass function, fx = P(X = x), and the
probability density function (pdf) of continuous variable Z*, then we can write
Z * = F * ( X *) = F * { X + (U 1)} = f ([ x *]) + f[ x*]+1U = F ( X 1) + f xU
(16)
And it is uniformly distributed on [0, 1], the [X] denotes the integer part of X. In case of
discrete data, we use Z* as an argument in the copula, if the marginal model is
well-specified. This ensures that the conditions for the usage of a copula are satisfied.
Suppose Y is another discrete random variable valued and let Y* = Y + V denotes its
continuous version. We assume that the random vector (U, V) is independent of (X, Y). It
is then understood that the joint distribution functions of (X*, Y*) can be written in terms
of the copula C of (U, V) as:
H *( x, y ) =
C ( x i, y j) p ( x, y) RxR
ij
(17)
i j, {, } / {0}, where ij denotes the joint probability function of (X, Y).
Related works
Research on dependence structures of rubber markets has been minimal. A few studies
explored the relationship between rubber spot and futures prices on AFET employing
co-integration and error correction model (Romprasert, 2009; Nittayagasetwat and
Nittayagasetwat, 2010). Nonetheless, their works hardly reported any significant
observation on the dependence structure of rubber markets in Thailand.
In different settings, Gregoire et al. (2008) showed how forecasts for crude oil and
natural gas prices could be improved by modelling the dependence structure between
them. Another study by Alexander (2005) explored the dependence between futures
prices of crude oil and natural gas. Results showed that degree of dependence was strong.
He, however, mentioned that dependence cannot be modelled correctly considering a
bivariate normal distribution. While a limited number of studies attempted to investigate
price dependence in energy markets employing copulas and Monte Carlo forecasting
techniques, a few literature modelled the dependence structure between the returns of
equity and commodity futures and their evolutions over a long period. Delatte and Lopez
332
(2012) modelled the dependence between commodity including metal, agricultural,

energy and stock markets employing copulas. They found that the dependence structures
between commodity and stock markets was time-varying, symmetric and occurred most
of the time as opposed to mostly in extreme events. Their research established that not
allowing for time-varying parameters in the dependence distribution generated a bias
towards evidence of tail dependence. Similarly, considering only tail dependence might
lead to erroneous evidence of asymmetry. In addition, some studies attempted to model
returns from portfolios consisting of both commodities and equities under conditional
asymmetric dependence using copulas. Pedraz et al. (2012) measured conditional
asymmetric dependence for oil and gold futures and the S&P 500 index. Study concluded
that portfolios developed using copula-based measures achieved more profitable
investment ratios and better relative performance measures than using conventional
measures like Markowitzs mean variance efficient frontier. They argued that the key
factors attributing to the significant economic difference among methods were univariate
process identification, dynamic dependence including tail and asymmetric dependence.
Karlqvist (2008) conducted a similar kind of experiment. A few studies contributed to
advancement of methods through a combination of copula and GARCH models, for
example, Hsu et al. (2008) employed copula-based GARCH models to estimate dynamic
hedge-ratio. They compared dynamic hedging effectiveness with that of other hedging
models including conventional static or non time-varying and GARCH including
CCC-GARCM and DCC-GARCH models. Their study concluded that copula-based
GARCH models performed better than other dynamic hedging models.
From above review, it appears that studies that explored dependence issues
considering copula in the futures market have not been adequate and conducted studies
are not specific to rubber markets. Therefore, the present study might be a relevant one
from an empirical generalisation standpoint and would contribute to futures markets in
general and rubber markets in particular.
Data structures and methods
The study considered daily closing futures prices of rubber futures contracts from July
2006 to April 2010. Price data were accessed from Indias and Asian rubber futures
markets, namely NMCE, SHFE, TOCOM and AFET and data series consisted of
all-month (near, middle and far) rubber futures for the mentioned period. We calculated
return series taking logarithmic first difference of price data [ln (Ft / Ft1)]. In order to
arrive at the common data series of the spot and futures prices, we considered matching
data points resulting in a homogenous time frame for the sample-period. For ease of
estimation, we considered rolling contract (full sample period) instead of delivery-month
wise expiry of the contract assuming that most of the market participants exhibit their risk
averse behaviour. In other words, they often adopt hedging strategy using rubber futures.
We present copula methodology in this section and its congruence to model the
dependence in non-Gaussian world. A copula captures the complete dependence
embedded in a random vector in contrast to linear correlation (Embrechts et al., 2002). It
is a function that connects or couples both multivariate and marginal distribution
function. It separates a marginal distribution from joint distribution. There are two broad
classes of copula: one is elliptical and another one, Archimedean.
333
Elliptical copula is generated through a multivariate distribution function. The

popular copulas in this class include Gaussian (or normal) and t copula. Elliptical copulas
have become popular in modelling dependence structure of financial return series.
However, these are not robust in capturing important characteristics of financial return
series due to the assumption of conditional normality. Financial return series typically
show a fat tail that is excess kurtosis and extreme co-movement in the tail region. As a
result, Gaussian copula becomes inadequate for modelling (Mashal and Zeevi, 2002;
Dobric and Schmid, 2005; Kim, 2010). Second, although the students t copula has
extensively been considered on account of its relatively good performance, ease in
implementation and so on, however, Students t copula shows symmetric co-movement
to attain minimum distance estimation (MDE is being tested by Kolmogorov-Smirnov or
K-S test) and subsequently results are presented through quantile (Q-Q) plot in the tail
area. Finally, this phenomenon makes it unfit to model the dependence.
Shape generator of a distribution density function gives rise to the Archimedean
copula. It is useful for modelling dependence structure. Since the Archimedean copula is
robust one, it can model extreme co-movement in the tail regions. Some existing forms of
Archimedean copula are Gumbel, Frank and Clayton. The bivariate Archimedean copula
is well-established and can effectively be employed for financial modelling. However,
the d-dimensional generalisation of the Archimedean copula is restricted. The first
d-dimensional generalisation of the Archimedean copula refers to a symmetric one (Joe,
1997) or an exchangeable case. A symmetric structure requires only one generator
regardless of the dimensions of a joint distribution. Thus, the number of estimated
parameters does not increase with an increase in dimension. Therefore, the same
pair-wise dependence is assured for all variables in the d-dimensional space as it is not
feasible always to capture the dependence among variables.
The second generalisation is asymmetric or nested structure that employs (d 1)
generators and enable model the dependence structure more effectively in comparison to
symmetric case. This generalisation comprises two methods: one is fully nested and other
one, partially nested. The main idea of a fully nested structure is to first couple X1 and X2
followed by coupling the copula of X1 and X2 with X3. Subsequently, the resulting copula
is coupled with X4 and so on. Through this process, we can obtain a higher dimensional
copula by adding one dimension at a time, so that the number of distinct generator
remains (d 1). McNeil (2008) illustrated the sampling architectures of a fully nested
case and provided sufficient conditions for generating a proper copula. On the other hand,
a partially nested structure is a combination of an exchangeable and a fully nested
structure. This method considers a maximum of (d 1) distinct generators based on the
dependence structure in the given dataset. Savu and Trede (2006) opined that a partially
structure provides more flexibility to model the dependence structures.
In this study, we used all classes of copulas to measure the dependence structure of
rubber futures markets captured by selected exchanges.
Results and discussions
6.1 Descriptive statistics of dependence measures

Both Indias rubber futures and spot price and their return series are graphically presented
through Figures 1 to 2. From October 2007 onwards futures witnessed major fluctuations
334
and reached peak price in May 2008 (more than INR 10,000 per quintal). Futures had all
time high during this period and eventually, trading was suspended. Rubber futures
trading resumed in December 2008. Gradually, prices tended to move in the bracket of
INR 12,00015,000 per quintal in December 2010. Then, rubber futures prices moved
upward and touched more than INR 17, 000 per quintal in late 2010 or in early 2011.
Figure 1
Indias rubber spot price series
Figure 2
Indias rubber futures price series (NMCE)
Table 2
Descriptive statistics of rubber futures returns across India and Asian markets
Mean (in percent)

Median
Maximum
Minimum
Std. dev.
Skewness
Kurtosis
Jarque-Bera (J-B)
R_NMCE
R_SHFE
R_TOCOM
R_AFET
0.08
0.0013
0.12
0.18
0.02
1.04
15.73
4,048.25*
0.02
0.0009
0.06
0.28
0.02
4.00
55.68
69,084.22*
0.04
0.0027
0.10
0.50
0.03
7.02
115.01
310,096.80*
0.05
0.0008
0.06
0.41
0.02
8.22
140.87
469,078.60*
Notes: Table 2 shows basic descriptive statistics of rubber futures return across
exchanges. R_NMCE represents rubber futures return in India, likewise R_SHFE,
R_TOCOM and R_AFET return series in China, Japan and Thailand respectively.
In addition to median and range, all moments including mean, standard deviation,
skewness and kurtosis of rubber futures returns were calculated and Table 2
presents these.
*Denotes the rejection of null hypothesis of normality at 5% level of significance.
Source: Authors estimation
335
The returns, estimated by considering first difference of logarithmic futures prices, i.e.,
rt = ln (Ft / Ft1), of the four exchanges considered for the study are analysed and
presented in Table 2. Mean returns of futures at the NMCE are highest whereas at SHFE,
the lowest. Returns in each exchange had negative skewness (negatively skewed) and
high kurtosis (leptokurtic). Negative skewness indicates that the magnitude of loss is
more probable than the gain. The excess kurtosis indicates peaked fait-tailed
distribution. Jarque-Bera (JB) test confirms non-normality of return series.
Figure 3
Presents futures returns across different exchanges (see online version for colours)
Notes: R_NMCE, R_SHFE, R_TOCOM and R_AFET represent returns at the NMCE,
SHFE, TOCOM and AFET respectively. X-axis denotes the year and Y-axis,
returns in absolute terms (not in percentage).
These returns were almost identical across exchanges.
6.2 Distribution fit to return series

Different information criteria confirmed that the normal distribution was the best fit for
all the series. Figures 4 to 7 presents the pdf through plotted histograms of futures series.
336
Figure 4

Distribution fit and histogram of returns at NMCE (see online version for colours)
Estimated normal p.d.f and Histogram of R_NMCE
Notes: Figure 4 explains the histograms of marginal distribution and how these were
fitted to the normal pdf. In order to identify the best fit distribution, both normal
pdf and histograms are plotted in the same figure. The returns across exchanges
were tested to fit into the best distribution. The parameters of distributions were
generated through maximum likelihood estimation (MLE) approach and it was
found that normal distributions and its parameters (mean and variance) captured
the actual mean and variances of the marginal distribution.
Figure 5
Distribution fit and histogram of returns at SHFE (see online version for colours)
Estimated normal p.d.f and Histogram of R_SHFE

Figure 6
Distribution fit and histogram of returns at TOCOM (see online version for colours)
Estimated normal p.d.f and Histogram of R_TOCOM
Figure 7
Distribution fit and histogram of returns at AFET (see online version for colours)
Estimated normal p.d.f and Histogram of R_AFET
337
338
Figure 8

Joint scatter plot of returns between NMCE and SHFE (see online version for colours)
Notes: Figure 8 presents joint scatter plot of returns across various exchanges. In every
scatter plot, marginal distribution of returns at NMCE is plotted in X-axis and
marginal distributions of returns at the other exchanges in Y-axis for examining
the degree of correlation and return-variations between NMCE and any other
exchange.
Figure 9
Joint scatter plot of returns between NMCE and TOCOM (see online version
for colours)
exchange.
339
Figure 10 Joint scatter plot of returns between NMCE and AFET (see online version for colours)
exchange.
6.3 Joint scatter plot of NMCE and other exchanges

Copula is applied to understand the dependency structure between variables. The primary
step to know dependency between two variables is through correlation. Scatter plot
depicts the correlation between two exchanges. Figures 8 to 10 plot the joint scatter
diagrams of returns between NMCE and other international exchanges. Every scatter plot
features lower tail dependency. The cloudy structure indicates mild to moderate level of
correlation between NMCE and other exchanges.
Table 3
Results of Spearmans rho estimates

NMCE
NMCE
SHFE
TOCOM
AFET
SHFE
0.33*
TOCOM
0.28*
0.59*
AFET
0.20*
0.47*
0.48*
Notes: Table 3 reports the coefficients of Spearmans rho or rank correlation. Due to its
compatibility with copula-based measures, Spearmans rho estimates were used to
measure the direction and strength of relationship between any of two exchanges.
Each coefficient measured the linear relationship between two sets of ranked data
and showed how they tightly clustered around a straight line (Altman, 1991).
Correlation coefficients tabulated in the first column indicate a low degree of
correlation between NMCE and other exchanges.
*Correlation coefficient significant at 5% level.
340
Table 4
Results of Kendalls tau estimates

NMCE
NMCE
SHFE
TOCOM
AFET
SHFE
0.23*
TOCOM
0.19*
0.43*
AFET
0.13*
0.33*
0.34*
Notes: Table 4 presents Kendalls tau, a measure of correlation between any two
exchanges. The usage of Kendalls tau has become popular in non-parametric
measures because of its better statistical properties than other measures (Conover,
1980). The coefficient measures the probabilities of concordant and disconcordant
pairs.
*Correlation coefficient significant at 5% level.
6.4 Correlation estimates using Spearmans rho and Kendalls tau

Tables 3 and 4 report the results of the correlation coefficient estimates. These indicate
dependence behaviour between different exchanges. Highest dependence structure was
found between NMCE and SHFE ( = 0.33, = 0.23) followed by NMCE-TOCOM
( = 0.28, = 0.19) and NMCE-AFET ( = 0.20, = 0.13).
Figure 11
Copula fit between NMCE-SHFE (see online version for colours)
Normal copula
Students t copula
Notes: Figure 11 measures the copula fit between two return series. Normal and Students
t copulas under elliptical class, and Clayton, Frank, Gumbel under Archimedean
class were tested to find out the best fit between return series at two exchanges. In
every graph, marginal distribution of returns at NMCE is plotted in X-axis and the
marginal distributions of returns at the other exchanges in Y-axis. Students t
copula has maximum points in the tail-region and takes a star like shape. Clayton
and Gumbel copulas are asymmetric. Clayton copula exhibits a greater
dependence in the negative tail-region and Gumbel copula exhibits relatively more
dependence in the positive tail-region and Frank copula is symmetric.

Figure 11
Copula fit between NMCE-SHFE (continued) (see online version for colours)
Clayton copula
Frank copula
Gumbel copula
341
342
Figure 12 Copula fit between NMCE-TOCOM (see online version for colours)
Normal copula
Students t copula
Clayton copula
Frank copula
Gumbel copula

Figure 13
343
Copula fit between NMCE-AFET (see online version for colours)
Normal copula
Students t copula
Clayton copula
Frank copula
Gumbel copula
4.24, 1
1.68, 1
Frank ()
Gumbel ()
507.05
381.44
570.81
0.79
515.77
390.16
579.53
2, 0.79
512.38
386.77
576.14
585.49
487.15
SIC
AIC
590.82
489.81
HQIC
0.44
8, 0.44
45.74
45.41
SIC
1.23, 4
0.29, 1
0.46, 1
43.18
35.10
37.83
51.90
43.82
46.55
48.15
40.43
43.16
54.46
49.77
AIC
NMCE-TOCOM
Parameters/
direction
Estimates of various Archimedean copulas
594.21
491.15
NMCE-SHFE
1.15, 1
1.22, 1
0.31, 4
51.07
48.08
HQIC
0.41
16.05
11.04
9.25
6, 0.41
24.77
19.76
17.96
29.01
22.77
SIC
37.73
27.13
AIC
NMCE-AFET
Parameters/
direction
14.58
34.35
25.44
HQIC
21.39
16.37
Notes: Table 5 reports the parameters and the direction of both elliptical and the Archimedean copulas. NMCE is common in every pair for estimating copula parameters
between the NMCE and any other exchange. Three types of information criteria based on maximum likelihood estimation were calculated to select the best copula
fit for the given set of variables (futures return used).
1.37, 4
Clayton ()
Students t (mean and covariance)
Normal (covarianc)
Parameters/
direction
Table 5
Copula estimates
344
Copula estimates between exchanges: NMCE-SHFE, NMCE-TOCOM and

NMCE-AFET

Table 6
345
Copula-rank based on information criteria used
Copula
NMCE-SHFE
Rank NMCE-TOCOM
NMCE-AFET
Normal
Students t
Clayton
Frank
Gumbel
Notes: Table 6 presents ranks of copulas between the NMCE and other exchanges. We
ranked copulas based on the Schwarz Information Criteria (SIC) resulting in the
selection of best goodness-of-fit model. Frank copula outperformed in most of the
cases.
6.5 Copula fit between NMCE and other Asian exchanges

We generated copula parameters employing maximum likelihood estimation (MLE).
Different information criteria [AIC, SIC and HQIC, for more details, see Enders (1995),
Brooks (2008)] were estimated to find out the best fit copula (Table 5). SIC ranked
copulas are presented in Table 6. Figures 11 to 13 depict the different copulas between
NMCE and other international exchanges. Both elliptical and Archimedean copulas were
not very scattered indicating dependence. The parameter estimation and direction of
dependence generated by copulas are presented in Table 5. Students t copula had mostly
taken the star shape which is visible in Figure 10. NMCE-SHFE and NMCE-TOCOM
found the best fit with Frank copula. Normal copula was the best fit for NMCESHFE.
Clayton copula was the second best fit for NMCE-TOCOM. For NMCE-AFET,
Clayton copula was the best fit followed by the Frank copula. However, among
copula-based dependence models, Gumbel copula was found to be inferior in modelling
dependence.
6.6 Correlations with copulas

Equivalent rank correlation was measured using different class of copulas. Correlation
with elliptical copula was directly linked to the magnitude of covariance and in
Archimedean copula it was positively linked with parameters (). The correlation
coefficients had revised by employed copulas as evident in Tables 7 and 8. While
correlation value based on the best fit copula considered, correlation () became 0.57 and
0.29 between the NMCE-SHFE and the NMCE-TOCOM respectively. However, it was
only 0.21 between the NMCE-AFET. Though the value got changed, nonetheless, the
order of dependence remained the same, for instance, the NMCE-SHFE followed by the
NMCE-TOCOM and the NMCE-AFET. This can be verified through Figures 23 to 25,
direction 1. The direction of positive dependence was highest between NMCE-SHFE
(Figure 23). Figure 24, direction 4 depicts the mild degree of dependence between
NMCE-AFET.1
346

Estimates of Spearmans rho rank correlation with copula
Table 7
Correlation
revised by copula
Spearmans rho
NMCE-SHFE
NMCE-TOCOM
NMCE-AFET
Normal
0.70*
0.44*
0.38*
Students t
0.73*
0.43*
0.36*
Clayton
0.61*
0.27*
0.19*
Frank
0.59*
0.29*
0.21*
Gumbel
0.60*
0.26*
0.20*
Notes: Table 7 shows the Spearmans rank correlation coefficients with copula between
futures return across exchanges. Correlation coefficients moderated by normal and
students t copula show a moderate to high degree of correlation. However, Frank
copula shows a moderate correlation for NMCE-SHFE and a low level for
NMCE-AFET. Clayton copula which was found to be the best fit for
NMCE-AFET depicts a low correlation between these exchanges also.
*Significant at 5% level.
Results of Kendalls tau with copula
Table 8
Kendalls tau
Correlation
with copula
NMCE-SHFE
NMCE-TOCOM
NMCE-AFET
Normal
Students t
Clayton
Frank
Gumbel
0.58*
0.58*
0.41*
0.40*
0.29*
0.29*
0.19*
0.19*
0.26*
0.26*
0.13*
0.13*
Notes: Table 8 reports correlation coefficients measured by Kendalls tau using the best
copula fit. We failed to calculate Kendalls tau for Frank copula as already
mentioned in the paper.
*Significant at 5% level.
Figure 14
Correlation with copula (normal and students t) between the NMCE-SHFE

(see online version for colours)
Notes: Figure 14 exhibits correlation structures with normal and students t copula. In
Figure 14, futures return-distribution at NMCE is plotted along the X-axis and
futures return distribution at other exchanges in Y-axis.

Figure 15
347
Correlation with copula (normal and students t) between NMCE-TOCOM

Figure 16
Correlation with copula (normal and students t) between NMCE-AFET

Figure 17
Correlation with copula (Clayton) between NMCE and SHFE Clayton copula selected
the direction 4 (lower right) during the estimation of copula parameters
Notes: Figure 17 shows the correlation pattern with Clayton copula. In Figure 17, futures
return-distribution at NMCE is plotted along the X-axis and futures
return-distribution at other exchanges in Y-axis. Upper left, upper right, lower left
and lower right represents the directions 1, 2, 3 and 4, respectively.
It shows relatively high positive dependence in futures return between two
exchanges.
348
Figure 17
Correlation with copula (Clayton) between NMCE and SHFE Clayton copula selected
the direction 4 (lower right) during the estimation of copula parameters (continued)
It shows relatively high positive dependence in futures return between two
exchanges.
Figure 18
Correlation with copula (Clayton) between NMCE and TOCOMI (see online version
for colours)
In this case, direction 1 (upper left) is selected by Clayton copula which also
signifies a low degree of correlation.

Figure 19
Correlation with copula (Clayton) between NMCE and AFET (see online version
for colours)
For NMCE-AFET, direction 4 (lower left) is selected by Clayton copula. It does
not indicate any level of positive correlation of return series between NMCE and
AFET.
Figure 20 Correlation with copula (Frank) between NMCE and SHFE (see online version
for colours)
Notes: Figure 20 presents correlation structures between return-distribution across four

exchanges with Frank copula. X-axis represents the return-distribution fit at
NMCE and Y-axis, return-distribution at other three exchanges. Left and right part
of the figures denotes directions 1 and 2 respectively. In all the cases, correlation
with Frank copula selects direction 1 (left) while estimating copula parameters.
349
350
Figure 21
Correlation with copula (Frank) between NMCE and TOCOM (see online version
for colours)
Notes: Figure 21 presents correlation structures between return-distribution across four

exchanges with Frank copula. X-axis represents the return-distribution fit at
NMCE and Y-axis, return-distribution at other three exchanges. Left and right part
of the figures denotes directions 1 and 2 respectively. In all the cases, correlation
with Frank copula selects direction 1 (left) while estimating copula parameters.
Figure 22
Correlation with copula (Frank) between the NMCE and AFET (see online version
for colours)
Figure 23
Correlation with copula (Gumbel) between NMCE and SHFE (see online version
for colours)
Notes: Figure 23 depicts correlation pattern employing Gumbel copula. Upper left, upper
right, lower left and lower right represents the directions 1, 2, 3 and 4 respectively.
While estimating parameters of Gumbel copula, it selects the directions, 1, 4, 1 for
NMCE-SHFE, NMCE-TOCOM and NMCE-AFET, respectively.

Figure 23
351
Correlation with copula (Gumbel) between NMCE and SHFE (continued)

Figure 24 Correlation with copula (Gumbel) between NMCE and TOCOM (see online version
for colours)
352
Figure 25 Correlation with copula (Gumbel) between NMCE and AFET (see online version
for colours)
6.7 Discussions
The nature of distribution of the return series across different exchanges considered show
that any investor may be indifferent to any of these exchanges. The return series of all
exchanges showed correlation with other though the degree of dependency is different.
Indias market has been observed to be more correlated with Chinas markets than others.
For a robust measurement of non-linear dependence across exchanges copula-based
measures were used in this study. Copula has changed the degree of dependency by
marginal amount if the best explaining copula (rank 1) for India and other markets is only
considered. Nonetheless, the direction has remained unaltered. SHFE of China is one of
the leading exchanges for rubber futures and therefore, has been reflected in the
dependence of Indias market on it. Furthermore, it has implications on reference pricing
of rubber futures. However, non-price factors, namely upgradation in technology, skilled
labour force, trade policies and natural calamities influence rubber prices considerably.
It is interesting to note that China and India are the largest consumers of NR in the
world. China leads India in consumption due to the increased growth of its Tyre industry,
which is the major consuming industry for NR. India has also been witnessing a
substantial increase in the automobile industry sales for more than a decade and therefore,
its implication on NR consumption. Total NR production in the world thus has been
competing consumption requirements in India and China which has also been reflected
353
through the data structures on rubber futures in the leading exchanges of these two
countries.
Concluding observations
Literature on Indias rubber futures market has been quite sparse. Even the application of
copula to study the dependence structures in commodity markets has not been much
reported. As a gap-filler, the study was triggered with the request by ATMA for a ban on
rubber futures trading in India. The attempt through this study was to discern if Indias
rubber futures market has been dependent and if yes then what is the degree and
magnitude of dependence. While Indias futures market was dependent on all the three
exchanges which were taken up for the study, however, a greater dependence had been
observed between Indias and Chinas rubber futures markets.
On the informational efficiency front, this study indirectly throws some lights on
exogeneity issue of Indias market with respect to Asian markets. Nonetheless,
exogeneity has different forms namely, weak, strong, super-strong and block (Enders,
1995) that is subject to thorough examination employing VECM or/and some non-linear
models like Markovs threshold autoregression (Ciner, 2002; Guo-guang, 2005;
Ghoshray, 2009, 2010). To this end, co-integration between Indias and Asian rubber
markets could be explored to investigate informational efficiency in long-run (Engle and
Granger, 1987; OHara, 1997). In order to achieve it, both futures and spot prices have to
be obtained that may be a signpost to extend the present study. Linearity and normality
assumptions two are critical prior to employing any standard econometric techniques.
In this study, we used non-linear, empirical distribution assumptions for employing
copula-based techniques. And it may be noted that copulas helped in estimating revised
correlations and thus, enhanced the methodological congruence in modelling dependence
structures between these exchanges.
One way forward in this study might be investigating instantaneous causality
between changes in futures and spot prices or their return-series (Li and Pan, 2009). This
study considered a technical view of the market; a different approach could be to relate to
the fundamental analysis of factors that influence futures prices. A more realistic estimate
of dependence measures may be estimated employing copula-based GARCH models,
which could determine a time-varying hedge ratio and hedging effectiveness between
Indias vis--vis other Asian NR futures (and spot) markets (Hsu et al., 2008). These
would indeed help market participants in reducing their exposure to futures in case they
would encounter excessive losses. Therefore, use of these advanced models may be
another interesting direction for further research.
Findings of the study might have serious implications for the various stakeholders.
Since Indias market has been found dependent on the Chinas market greatly,
nevertheless, its functioning has to be regulated scrupulously considering the nature of
contract, its duration, contract specifications being important parameters among others. In
addition, regulatory framework for functioning of such a market in future may
increasingly become important. To this end, in the presence (absence) of informational
efficiency, participation and trade volume may increase (decrease) considerably in near
future, which might object or otherwise support the protest raised by ATMA players on
efficacy or vitality of Indias rubber futures market.
354
It may be noted that even in the context of domestic rubber trading there are inherent
risks in production management, which are endogenous to the market system and
attributable to several non-price factors affecting this industry (Ghosh, 2011). On the
other hand, awareness is lacking on the part of growers about rubber futures role in price
discovery and price risk management. However, this market has witnessed participation
of few cooperatives. Moreover, rubber industry has been witnessing a sheer concentration
of few corporations and traders, who dominate the value chain for cornering profits
(Gupta, 2011). It is worth noting that governments involvement had been active for
initiating a structural reform in rubber industry in late 80s (George et al., 1988). But,
during early 90s, government had withdrawn its support from commissioning rubber
mills and forming more cooperatives that resulted into major disincentives for small
growers and potential consumers like ATMA (Mani, 1992). In 2003, government
initiated rubber futures trading in software enabled trading environment. It started off
well and had been observed thickly traded due to high trade volume and participation
until 2010 even after a temporary suspension on futures trading in 2008 (Carter, 1989;
Mattos and Garcia, 2004). Nonetheless, the market has been becoming a thin one since
2011 (Dey, 2013). The present study, therefore, may help formulate some policies to
benefit Indias both growers and consumers as this study focused on market (futures)
integration by modelling dependence structures between Indias and Asian markets,
which can reduce the opacity in spot price information flow. As a result, it may enhance
participation of growers and ATMA in rubber futures and thus, would make Indias
rubber market, from its present form, to a perfect and competitive one.
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Notes
1
Based on the formulae, we calculated equivalent Kendalls tau for each class of copula. We
failed to calculate Kendalls tau for Frank copula because of the generation of complex
number. The Debye function generated bi-logarithm which further failed to estimate a final
value.
357
Appendix 1
The contract specification for NMCE rubber futures is as follows: minimum lot/contract
size of trading and delivery unit is 1 metric tonnes (mt). Trading is from Monday to
Friday of each month (except holidays) from 10 A.M. to 5 P.M. On Saturday, the timing
is 10 AM to 2 P.M. Tick size [minimum price difference between different buy (bid) and
sell (offer) prices of the same contract] is kept 1 INR (Indian Rupee). Quotation or base
value of coffee futures is standardised at INR per 100 kg or per quintal. Other
specifications are presented in Table A1.
Contract specification of rubber futures in NMCE futures exchange, India
Table A1
Trading parameters
Rubber
Asset/product/series
code(s)/trade terminal
RUBBER, RUBBERF, RBRMMMYYYY, NMCE DTSS
Unit of trading, trading

time
1 mt; Monday to Friday 10 am to 5 pm, Saturday 10 am to 2 pm
Delivery unit
1 mt
Quotation/base value
Rs. per 100 kg or per quintal
Tick size
Rupee 1/-
Price band
Daily price limit: Initial (+)/() 3%, final (+)/() 4% (3 + 1)
Delivery logic
Compulsory delivery
Limit on position
Member 12,000 mt or 15% of total open position

Client 4,000 mt
Near month limit
Member 5,000 mt or 15% of total OI, client 1,250 mt
No. of delivery
contracts in a year
Maximum 12 contracts monthly or minimum 2 bi-monthly contract

running concurrently on NMCE
Delivery centres
Central Warehousing Corporations (CWC) warehouses located in

Cochin/Ernakulam, Kottayam, Calicut, Malapuram and Trichur of
Kerala state of India
Basis variety and quality

specifications
Natural rubber (RSS-4)

a
Coagulated rubber sheets, properly dried and smoked: block,

cuttings, or other scrap or frothy sheets, weak, heated or burnt
sheets, air dried or smooth sheets not permissible.
Slight resinous matter (rust) and slight amounts of dry mould on

wrappers bale surfaces and interior sheets.
Medium size bark particles, bubbles, translucent stains, slightly

over smoked rubber are permissible to the extent shown in the
sample.
Source: Accessed from NMCE website (http://www.nmce.com) on

November 6, 2011

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Int. J. Financial Markets and Derivatives, Vol. 3, No. 4, 2014

Copulas and dependence structures: evidences from

Copulas and dependence structures

This paper is a revised and expanded version of a paper entitled Correlation

D. Maitra and K. Dey

Do copulas capture nonlinearity between above markets or do correlations as

Rubber markets and futures trading

Copulas and dependence structures

Note: # 1 lot = 1,000 kg or 1 metric ton.

Copula-definition and operationalisation

3.1 Definition of copula

For every a, b [0, 1]d with a b, given a hypercube.

D. Maitra and K. Dey

Moreover, if F1, , Fd are continuous, then C is unique and in discrete case, C is

Theorem 2: Tail dependence

U := limu 1 P X 2 > F2 1 (u ) X 1 > F11 (u )

Copulas and dependence structures

where is a generator of Archimedean copula and 1 is the inverse function of . The

D. Maitra and K. Dey

3.2 Parameter estimations in copulas

3.3 Elliptical copulas

3.3.2 Students t copula

3.3.3 Archimedean copulas

for a bivariate set is given by:

Copulas and dependence structures

3.3.4 Clayton copula

and its generator is:

( t 1) where (1, ) {0}

3.3.5 Frank copula

and its generator is:

3.3.6 Gumbel copula

D. Maitra and K. Dey

and its generator is:

3.4 Likelihood measures for estimating parameters

Copulas and dependence structures

i j, {, } / {0}, where ij denotes the joint probability function of (X, Y).

D. Maitra and K. Dey

(2012) modelled the dependence between commodity including metal, agricultural,

Data structures and methods

Copulas and dependence structures

Elliptical copula is generated through a multivariate distribution function. The

Results and discussions

6.1 Descriptive statistics of dependence measures

D. Maitra and K. Dey

Indias rubber spot price series

Indias rubber futures price series (NMCE)

Mean (in percent)

Copulas and dependence structures

6.2 Distribution fit to return series

D. Maitra and K. Dey

Estimated normal p.d.f and Histogram of R_NMCE

Estimated normal p.d.f and Histogram of R_SHFE

Copulas and dependence structures

Estimated normal p.d.f and Histogram of R_TOCOM

Estimated normal p.d.f and Histogram of R_AFET

D. Maitra and K. Dey

Copulas and dependence structures

6.3 Joint scatter plot of NMCE and other exchanges

Results of Spearmans rho estimates

D. Maitra and K. Dey

Results of Kendalls tau estimates

6.4 Correlation estimates using Spearmans rho and Kendalls tau