A new way of choosing a suitable copula to model dependence is introduced. Instead of relying on a given parametric family of copulas or applying the other extreme of modelling dependence in a nonparametric way, an intermediate approach is proposed, based on a sequence of parametric models containing more and more dependency aspects. In contrast to a similar way of thinking in testing theory, the method here, intended for estimating the copula, often requires a somewhat larger number of steps. One approach is based on exponential families, another on contamination families. An extensive numerical investigation is supplied on a large number of well-known copulas. The method based on contamination families is recommended. A Gaussian start in this approximation looks very promising.
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- Janic-Wroblewska, A. & Kallenberg, W. C. M. & Ledwina, T., 2004. "Detecting positive quadrant dependence and positive function dependence," Insurance: Mathematics and Economics, Elsevier, vol. 34(3), pages 467-487, June.
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- Olmo, José & Gonzalo, Jesús, 2005. "Contagion versus flight to quality in financial markets," UC3M Working papers. Economics we051810, Universidad Carlos III de Madrid. Departamento de Economía. Full references (including those not matched with items on IDEAS)
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