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Dec 8

Grouped T copula simulation and estimation

Posted by abiao at 20:24 | Code » Other | Comments(0) | Reads(13179)
Copula is widely applied to model the dependence of multivariate variable, two popula implicit copulas are Gaussian copula and T copula, however, tail dependence under Gaussian copula is asymptotically equal to zero, which is unrealistic and under-estimate the co-movement of variables, especially in extreme market situation nowdays; T copula, on the other hand, has a global degree of freedom to decide largely the dependence structure, which is over-simple, for instance, risk manager might want to define different degree of freedom for different markets due to their special risk profile. Grouped-T copula was created to overcome this problem, where seperated degree of freedom can be set for each subgroup. sample code is here: http://economia.unipv.it/pagp/pagine_personali/dean/programs/gruped_t_copula_simul_est

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