IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v15y2009i7-8p639-659.html
   My bibliography  Save this article

Models for construction of multivariate dependence - a comparison study

Author

Listed:
  • Kjersti Aas
  • Daniel Berg

Abstract

A multivariate data set, which exhibit complex patterns of dependence, particularly in the tails, can be modelled using a cascade of lower-dimensional copulae. In this paper, we compare two such models that differ in their representation of the dependency structure, namely the nested Archimedean construction (NAC) and the pair-copula construction (PCC). The NAC is much more restrictive than the PCC in two respects. There are strong limitations on the degree of dependence in each level of the NAC, and all the bivariate copulas in this construction has to be Archimedean. Based on an empirical study with two different four-dimensional data sets; precipitation values and equity returns, we show that the PCC provides a better fit than the NAC and that it is computationally more efficient. Hence, we claim that the PCC is more suitable than the NAC for hich-dimensional modelling.

Suggested Citation

  • Kjersti Aas & Daniel Berg, 2009. "Models for construction of multivariate dependence - a comparison study," The European Journal of Finance, Taylor & Francis Journals, vol. 15(7-8), pages 639-659.
    • Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:639-659
    DOI: 10.1080/13518470802588767
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802588767
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13518470802588767?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:639-659. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.