Pair-copulas modeling in finance

Beatriz Mendes (), Mariângela Semeraro and Ricardo Leal

Financial Markets and Portfolio Management, 2010, vol. 24, issue 2, 193-213

Abstract: This paper concerns itself with applications of pair-copulas in finance, and bridges the gap between theory and application. We provide a broad view of the problem of modeling multivariate financial log-returns using pair-copulas, gathering together for this purpose theoretical and computational results from the literature on canonical vines. From the practitioner’s viewpoint, the paper shows the advantages of modeling through pair-copulas and makes clear that it is possible to implement this methodology on a daily basis. All the necessary steps (model selection, estimation, validation, simulations, and applications) are discussed at a level easily understood by all data analysts. Copyright Swiss Society for Financial Market Research 2010

Keywords: Pair-copulas; Multivariate modeling; Markowitz mean variance model; C16; C51; G11 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (23)

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DOI: 10.1007/s11408-010-0130-1

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