Multivariate Hierarchical Copulas with Shocks |
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Authors: | Fabrizio Durante Marius Hofert Matthias Scherer |
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Affiliation: | 1.Department of Knowledge-Based Mathematical Systems,Johannes Kepler University Linz,Linz,Austria;2.Institute of Number Theory and Probability Theory,Ulm University,Ulm,Germany;3.HVB Stiftungsinstitut für Finanzmathematik,Technische Universit?t München,Garching,Germany |
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Abstract: | A transformation to obtain new multivariate hierarchical copulas, starting with an arbitrary copula, is introduced. In addition to the hierarchical structure, the presented construction principle explicitly supports singular components. These may be interpreted as the effect of local or global shocks to the underlying random variables. A large spectrum of dependence patterns can be achieved by the presented transformation, which seems promising for practical applications. Moreover, copulas arising from this construction are similarly admissible with respect to analytical tractability and sampling routines as the original copula. Finally, several well-known families of copulas may be interpreted as special cases. |
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