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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04-16, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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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.
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