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6

The algorithm is certainly useful in that it is non-parametric, fast, and versatile. Meucci summarizes the advantages nicely: Unlike traditional copula techniques, CMA a) is not restricted to few parametric copulas such as elliptical or Archimedean; b) never requires the explicit computation of marginal cdf’s or quantile functions; c) does not ...


5

If the density of $(X,Y)$ is known, then you may obtain the density of the sum $X+Y$ simply by applying the Jacobi's transformation formula, which describes the density of the transformed random variable $g(X,Y)$ for $g(x,y) = (x+y, x)$. Integrating out the $x$-component yields the density of $X+Y$. See Jacod/Protter Probability Essentials ch. 12 for ...


5

In general you don't need copulas to calculate VaR on portfolio. You can use historical method if you have time series of returns for the assets in your portfolio. If you have sufficiently enough data this will allow you to take into account correlation risk, non-normality of returns. Example of code in R for equally weighted portfolio without assuming any ...


5

Here is a working paper that you may be interested in.


3

Is'nt it true that your first line can be written as $$ F_{X,Y}(x,y_2) - F_{X,Y}(x,y_1), $$ where $F_{X,Y}$ is the joint cdf of $(X,Y)$. If we assume that the distributions of $X$ and $Y$ are continuous without atoms (I have to check the exact formulation), then it is clear from Sklar's theorem that there is exactly one copula $C$ such that $$F_{X,Y}(x,y) = ...


3

As you know, simulating AR(1) is to simulate the distributed error path. Assume the bivariate errors distributed $\sim F(x),\sim F(y)$ with copula $C(u,v)$ to model their dependence. Then the bivariate joint error distribution is given by Sklar's theorem: $$F(x,y)=C(F(x),F(y))$$ You can simulate from this distribution using Conditional Sampling: To ...


3

Look here for multivariate distribution on the positive quadrant ... quite difficult. http://xianblog.wordpress.com/tag/multivariate-analysis/ I have been thinking about this for weeks and months in the context of credit risk (modelling default intensities jointly) and I think this does not work.


3

It depends on the assets which copula is best and other methods may still be better and comparable in complexity. If you want to use copula's for equities you can take a look at Clayton copula. While the Gaussian copula is symmetric the Clayton copula has asymmetric tail dependency. This makes modeling the increase in correlation during a crisis possible.


3

In general setting this is quite a tough problem and it looks like just switching from regular multivariate probability to copulas doesn't make it easier. In general case you need to rely on numerical methods for integration. There is a nice overview of the problem in Copula Theory and Its Applications: Proceedings of the Workshop Held in Warsaw, 25-26 ...


2

Do you refer with 'negative tail dependence' to the case that one variable has a extremely low value and the other random variable has an extremely large value, i.e., $$\tau=\lim_{p \rightarrow 0} \frac{Pr[x>Q_x(1-p),y<Q_y(p)]}{p},$$ where $Q_x(1-p)$ and $Q_y(p)$ refer to the $(1-p)$-th quantile of the random variable $x$ and the $p$-th quantile of ...


2

You can express the Normal distribution by Sklar's Theorem in terms of Gaussian Marginals and Gaussian Copula as follows: $$F(x_1,...,x_n)=C(F(x_1),...,F(x_n))=C^{Gau}(N(x_1),...,N(x_n))$$ So the distribution equals the copula function with the respective inverse marginals as arguments. You can aswell combine any types of Copula and (continuous) different ...


2

Implementations of the BBx families are available from the VineCopula R-package from CRAN. Spatially and spatio-temporally varying bivariate copulas are provided through the R-package spcopula from r-forge. Temporal support will need some additional work as it was not part of the initial design. The tuning of the copulas' parameter can be done via a ...


1

For your first question, your derivative is incorrect. It instead is $\frac{\partial C^2}{\partial x \partial y} = 1+\theta(1-2x-2y+4xy)$. Note also that $x+y-2xy \geq x^2 + y^2 -2xy = (x-y)^2 \geq 0$. That is, $1-2x-2y+4xy \leq 1$. On the other hand, $1-2x-2y+4xy = 2(1-x)(1-y)+2xy - 1 \geq -1$. Then, $\frac{\partial C^2}{\partial x \partial y} \geq 0$, for ...


1

if you agree that the marginal probability $P(u\le Y\le v)=F_Y(v)-F_Y(u)$, then your formula follows immediately, because next you simply plug the marginals into the copula. your 3rd equation for the joint probabilities is incorrect for $P(Z\le z,u\le Y\le v)$, I'm not sure where you got it from


1

The joint pdfs can exhibit whatever the characteristics are of the two random variables. This includes location (mean), spread(sigma), skewness, kurtosis, other moments, etc. As was pointed out above however, you need to ensure that normal is the best fitting distribution for your data. Copulas are used for simulation, which requires knowing the ...



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