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A Goodness-of-Fit Test for Copulae Based on the Probability Integral Transform
Company: Norwegian Computing Center
Year Of Publication: 2005
Month Of Publication: December
Pages: 23
Download Count: 435
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 2-11-2007
Publisher: Administrator
Summary
Copulae is one of the main ways of modelling dependence. However, to checkwhether the dependency structure of a data set is appropriately modelled by achosen family of copulae, there is no recommended method agreed upon.We introducea new goodness-of-fit test, based on the probability integral transform.The test is consistent, meaning that no deviations from the null hypothesis areneglected. The test also incorporates a weighting functionality, allowing us to increasethe importance of some specific areas of the copulae, for example the tails.Results show that our test has good power at distinguishing tail heaviness andskewness properties. If we add tail weight the power at distinguishing tail heavinessincreases dramatically. The results also show that a different proposed test,that is not consistent, performs well for tail heaviness but very poor for skewness.Simulations are used to obtain the empirical behaviour of the tests. Appliedto a collection of stock portfolios our test strongly rejects the Gaussian and theClayton copulae, while the Student’s t copula provides a good fit
Author(s)
Berg, Daniel Sign in to follow this author
Bakken, Henrik Sign in to follow this author
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