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Pair-Copula Constructions of Multiple Dependence
Year Of Publication: 2006
Month Of Publication: August
Pages: 39
Download Count: 495
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 2-11-2007
Publisher: Administrator
Summary
Building on the work of Bedford, Cooke and Joe, we show how multivariate data,which exhibit complex patterns of dependence in the tails, can be modelled using a cascadeof pair-copulae, acting on two variables at a time. We use the pair-copula decomposition ofa general multivariate distribution and propose a method to perform inference. The modelconstruction is hierarchical in nature, the various levels corresponding to the incorporationof more variables in the conditioning sets, using pair-copulae as simple building blocs. Paircopuladecomposed models also represent a very flexible way to construct higher-dimensionalcoplulae. We apply the methodology to a financial data set. Our approach represents thefirst step towards developing of an unsupervised algorithm that explores the space of possiblepair-copula models, that also can be applied to huge data sets automatically.
Author(s)
Aas, Kjersti Sign in to follow this author
Czado, Claudia Sign in to follow this author
Frigessi, Arnoldo Sign in to follow this author
Bakken, Henrik Sign in to follow this author
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