Pair-Copula Constructions for Financial Applications: A Review

Kjersti Aas
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Kjersti Aas: Department of Statistical Analysis, Image Analysis and Machine Learning, Norwegian Computing Center, N-0314 Oslo, Norway

Econometrics, 2016, vol. 4, issue 4, 1-15

Abstract: This survey reviews the large and growing literature on the use of pair-copula constructions (PCCs) in financial applications. Using a PCC, multivariate data that exhibit complex patterns of dependence can be modeled using bivariate copulae as simple building blocks. Hence, this model represents a very flexible way of constructing higher-dimensional copulae. In this paper, we survey inference methods and goodness-of-fit tests for such models, as well as empirical applications of the PCCs in finance and economics.

Keywords: pair-copula constructions; vines; dependence; conditional distribution; flexibility (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (22)

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