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De copulis non est disputandum - Copulae: An overview

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  • Härdle, Wolfgang Karl
  • Okhrin, Ostap

Abstract

Normal distribution of the residuals is the traditional assumption in the classical multivariate time series models. Nevertheless it is not very often consistent with the real data. Copulae allows for an extension of the classical time series models to nonelliptically distributed residuals. In this paper we apply different copulae to the calculation of the static and dynamic Value-at-Risk of portfolio returns and Profit-and-Loss function. In our findings copula based multivariate model provide better results than those based on the normal distribution.

Suggested Citation

  • Härdle, Wolfgang Karl & Okhrin, Ostap, 2009. "De copulis non est disputandum - Copulae: An overview," SFB 649 Discussion Papers 2009-031, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2009-031
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    References listed on IDEAS

    as
    1. Andrew J. Patton, 2004. "On the Out-of-Sample Importance of Skewness and Asymmetric Dependence for Asset Allocation," Journal of Financial Econometrics, Oxford University Press, vol. 2(1), pages 130-168.
    2. Edward Frees & Emiliano Valdez, 1998. "Understanding Relationships Using Copulas," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(1), pages 1-25.
    3. Niall Whelan, 2004. "Sampling from Archimedean copulas," Quantitative Finance, Taylor & Francis Journals, vol. 4(3), pages 339-352.
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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