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A Versatile Copula and Its Application to Risk Measures

Author

Listed:
  • Jeungbo Shim

    (Department of Business Administration, Illinois Wesleyan University, U.S.A.)

  • Eun-Joo Lee

    (Department of Mathematics, Millikin University, U.S.A.)

  • Seung-Hwan Lee

    (Department of Mathematics and Computer Science, Illinois Wesleyan University, U.S.A.)

Abstract

This paper proposes a copula that has versatile properties. We apply grouped t and versatile t copulas to estimate Value at Risk and expected shortfall using a sample of firms in the US property-liability insurance industry. We perform goodness-of-fit tests to assess the adequacy of the copula models selected. We find that a versatile copula is effective in estimating dependence structures of non-homogeneous multivariate risks.

Suggested Citation

  • Jeungbo Shim & Eun-Joo Lee & Seung-Hwan Lee, 2010. "A Versatile Copula and Its Application to Risk Measures," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 9(3), pages 213-231, December.
    • Handle: RePEc:ijb:journl:v:9:y:2010:i:3:p:213-231
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    References listed on IDEAS

    as
    1. W. Breymann & A. Dias & P. Embrechts, 2003. "Dependence structures for multivariate high-frequency data in finance," Quantitative Finance, Taylor & Francis Journals, vol. 3(1), pages 1-14.
    2. Genest, Christian & Rémillard, Bruno & Beaudoin, David, 2009. "Goodness-of-fit tests for copulas: A review and a power study," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 199-213, April.
    3. Lee, Seung-Hwan, 2007. "On the versatility of the combination of the weighted log-rank statistics," Computational Statistics & Data Analysis, Elsevier, vol. 51(12), pages 6557-6564, August.
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    More about this item

    Keywords

    dependence structure; versatility; grouped t copula; value at risk;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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