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A Versatile Copula and Its Application to Risk Measures

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Author Info

  • 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.)

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    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.

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    Bibliographic Info

    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 9 (2010)
    Issue (Month): 3 (December)
    Pages: 213-231

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    Handle: RePEc:ijb:journl:v:9:y:2010:i:3:p:213-231

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    Related research

    Keywords: dependence structure; versatility; grouped t copula; value at risk;

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    1. 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.
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