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Title:Multivariate Copula Models at Work: Outperforming the desert island copula? PDF Logo
Authors:Fischer, Matthias J.
Köck, Christian
Schlüter, Stephan
Weigert, Florian
Issue Date:2007
Series/Report no.:Diskussionspapiere // Friedrich-Alexander-Universität Erlangen-Nürnberg, Lehrstuhl für Statistik und Ökonometrie 79/2007
Abstract:Since the pioneering work of Embrechts and co-authors in 1999, copula models enjoy steadily increasing popularity in finance. Whereas copulas are well-studied in the bivariate case, the higher-dimensional case still offers several open issues and it is by far not clear how to construct copulas which sufficiently capture the characteristics of financial returns. For this reason, elliptical copulas (i.e. Gaussian and Student-t copula) still dominate both empirical and practical applications. On the other hand, several attractive construction schemes appeared in the recent literature prom sing flexible but still manageable dependence models. The aim of this work is to empirically investigate whether these models are really capable to outperform its benchmark, i.e. the Student-t copula (which is termed by Paul Embrechts as "desert island copula" on account of its excellent fit to financial returns) and, in addition, to compare the fit of these different copula classes among themselves.
Subjects:KS-copula
Hierarchical Archimedian
Product copulas
Pair-copula decomposition
Document Type:Working Paper
Appears in Collections:Diskussionspapiere des Lehrstuhls für Statistik und Ökonometrie, FAU Erlangen-Nürnberg

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