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Questions tagged [copula]

A copula is a multivariate distribution with uniform marginal distributions. Copulas are mostly used to represent/model the structure of dependence between random variables, separately from the margins.

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Forecasting conditional returns in DCC-GARCH-copula approach in R

anyone who could help me interpreting and modifying this code? I have a dataset and want to reserve the last 100 returns for out-of-sample analysis. After specifying and fitting the garch-spd-copula, ...
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Historical quotes / prices of multiasset options

I am working on Lévy copulas, and I would like to try calibrating such techniques on real data. Where can I find quotes for multi-asset options? It could be exchange options or any other type of ...
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(Reproducible example) Conditional returns in GARCH-EVT-Copula context (with R)

I'm estimating a time-varying correlation matrix for the normal copula using the rmgarch package from R. I've found this code in the rmgarch.tests folder. I use the ...
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How to fit a skew normal/t copula to data?

I want to use either the skew normal copula or the skew t copula with a time-varying correlation matrix. But so far I haven't found any way to implement this either in R or Matlab. Would anyone be ...
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Estimation of ranks of log-returns via copula

I have successfully chosen and estimate a copula for the ranks of the log-returns of my actions. My question is, since I have worked with the ranks instead of directly the log-returns (in order to be ...
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How can we compute copula functions by using Fast Fourier transformation?

Q1. If a copula is expressed in terms of its moment generating function then how can this copula can be computed by using Fast Fourier Transformation? Q2. Can we use copula to evaluate spread option ...
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'GARCH - extreme value theory - copula' approach to estimate risk measures in R

I'm reading about this approach of using GARCH-EVT-copula methodology to separate univariate and joint estimation and then estimate for example VaR and ES. I wanted to try something similar, but my ...
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how to apply a simple copula model

I'm playing around with copulas and wanted to generate some sample based on copula techniques in R. For this purpose I applied the following algorithm: Generate three sample vectors coming from ...
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Practical Use of Copulas and Sample Generation

I'm currently studying Copulas. However, i did not understand something. The very basic phases of Copula fitting is as follows i assume; Model each samples distribution with a parametric(or non-...
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Alternatives to Elliptical and Archimedean copulas for modelling dependency structure between stocks

Except from the well-know and well-documented Elliptical (i.e. Gaussian, Student-t) and Archimedean (i.e. Frank, Clayton, Gumbel) copulas used to model the dependency structure between stock returns, ...
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trying to better understand copulas

This topic is dense with notation that makes things a bit confusing. But is this the correct interpretation? Suppose we have two jointly distributed random variables – $X$ and $Y$ – of arbitrary (but ...
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Non stationarity issue on copula estimation procedure

In this paper (1), on page 14 (section 4), the author presents an empirical experiment on the computation of a copula through the use of kernels. To do so, he uses the following stochastic process (...
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Bivariate risk neutral distribution through copula

I want to build a bivariate risk-neutral distribution from two liquid assets (A and B) through the use of a copula. As A and B are liquid, I have the marginal distributions from the market. All I have ...
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Suggestions to build a copula to price Quanto options

I am willing to price a quanto option through the use of copulas. I will follow the following procedure: 1) Obtain the marginal distributions of the underlying asset and the exchange rate from ...
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Problems in computing VaR with GARCH-GPD-copula approach

I use a time-varying Gaussian copula (with GARCH-filtered standardized residuals modeled semiparametrically with Gaussian kernel interior and GPD tails, i.e. generalized pareto distributed) to ...
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False warning messages in R, is it possible?

I'm modeling GARCH-filtered standardized residuals via semiparametric distribution with Gaussian kernel and GPD (generalized pareto distribution) tails with thresholds at 5% and 95%. For some series I'...
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Gaussian Copula with t margins

I am trying to fit a Gaussian Copula with t margins to my data (log returns of two stocks). It has already worked for a Gaussian Copula with normal margins with: normcopula_dist = mvdc(copula=...
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Gaussian Time-varing copula in R

I want to estimate the parameters of time-varing Normal Copula using R. A bivariate Normal copula is defined as following: The dynamic equation of dependance parameter ρ is : So I need the identify ...
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Convolution of Dependent Random Variables with Copulas

Lets say I have 2 different observations which are fitted to a parametric distribution. And lets say that they are dependent and can be modeled by one of the copulas. I want to calculate “a value” ...
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Gaussian copula: contract price

The hazard rates for A and B are 1% and 2% respectively. A contract pays you $1 if A defaults earlier than B. What is the correlation that minimizes the price of the contract? I have not studied the ...
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simulating from GARCH model with copula innovations

I have a GARCH model fitted on stock returns as: ...
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Sampling from conditional copula

Let C be a Gaussian or Student copula and F1,...,Fd the empirical margins. $C(u)=F(F_1(u_1)^{-1},...F_d(u_d)^{-1})$ I know how to draw from C and get $(u_1,...,u_d)$ Imagine that I know $u_1$ and $...
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Estimating time-varying tail dependence for Archimedean copulas

Patton (2006) defines the upper tail dependence coefficient for a time-varying bivariate SJC copula as $$\tau^u_t=\Lambda \left(\omega_u + \beta_u \tau^u_{t-1}+\alpha_u \frac{1}{10}\sum^{10}_{i=1}|u_{...
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How to write time-varying functions in R? Applied example

Let's say I want to use a Gaussian copula $$C_{R_t}(\eta_1, ..., \eta_n) = N_{R_t}(N^{-1}(\eta_1), ...,N^{-1}(\eta_n))$$ with a time-varying correlation matrix $R_t$. Through DCC we model the ...
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copulas and time series

Can anbody explain how Copulas are used to describe the dependency between, for example, the return on two different stocks? I understand how Copulas are the "glue" that binds the two marginals ...
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Time-Varying Copulas (GAUSS)

Could anyone suggest me how to begin with Time-varying Copulas or Stochastic Copulas? I'm looking for the GAUSS code, however it seems there are only MATLAB code available over the internet. I'm ...
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Effect of kernel smoothing on correlation

Instead of deriving correlation matrix on standardized returns (z scores) would it not be more accurate to kernel smooth the cdf and then norminv the cdf values for the return z score and then ...
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Problem in copula fitting

I have returns of 2 stocks: stock1 and stock2. And I want to fit pair copula. I use this libraries library(VineCopula) library(copula) then I select an ...
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Fit a copula model in R

I want to accomplish the task of creating an optimal portfolio of stocks, the yield between which is modeled using kopulas. And I have data: return of 4 stocks: ...
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Using variance reduction on only some models

I am pricing options with some copula based models using Monte Carlo simulation. I was looking up some easily implementable variance reduction methods and decided on antithetic variates. However, ...
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Positive quadrant dependence

Gijbels et. al. Positive quadrant dependence tests for copulas (25 page PDF) What could potentially be application of this concept in economics and finance? From what I read from a couple of papers, ...