Archimedean copulas derived from utility functions

Jaap Spreeuw

Insurance: Mathematics and Economics, 2014, vol. 59, issue C, 235-242

Abstract: The inverse of the (additive) generator of an Archimedean copula is a strictly decreasing and convex function, while utility functions (applying to risk averse decision makers) are nondecreasing and concave. This provides a basis for deriving an inverse generator of an Archimedean copula from a utility function. If we derive the inverse of the generator from the utility function, there is a link between the magnitude of measures of risk attitude (like the very common Arrow–Pratt coefficient of absolute risk aversion) and the strength of dependence featured by the corresponding Archimedean copula. Some new copula families are derived, and their properties are discussed. A numerical example about modeling dependence of coupled lives is included.

Keywords: IM10; IE12; IE43; Copula; Archimedean generator; Utility function; Risk aversion; Dependence (search for similar items in EconPapers)
JEL-codes: C02 C14 D81 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:59:y:2014:i:c:p:235-242

DOI: 10.1016/j.insmatheco.2014.10.002

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