The Role of Copulas in the Housing Crisis
Due to its simplicity and familiarity, the Gaussian copula is popular in calculating risk in collaterized debt obligations, but it imposes asymptotic independence such that extreme events appear to be unrelated. This restriction might be innocuous in normal times, but during extreme events, such as the housing crisis, the Gaussian copula might be inappropriate. This paper explores various copula specifications and finds that the degree to which housing prices are related based on the Gaussian copula is too small compared with real housing price data. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 94 (2012)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
This item is featured on the following reading lists or Wikipedia pages:
- The Role of Copulas in the Housing Crisis (REStat 2012) in ReplicationWiki
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:94:y:2012:i:2:p:607-620. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If references are entirely missing, you can add them using this form.