On the simplified pair-copula construction -- Simply useful or too simplistic?

Ingrid Hobæk Haff, Kjersti Aas and Arnoldo Frigessi

Journal of Multivariate Analysis, 2010, vol. 101, issue 5, 1296-1310

Abstract: Due to their high flexibility, yet simple structure, pair-copula constructions (PCCs) are becoming increasingly popular for constructing continuous multivariate distributions. However, inference requires the simplifying assumption that all the pair-copulae depend on the conditioning variables merely through the two conditional distribution functions that constitute their arguments, and not directly. In terms of standard measures of dependence, we express conditions under which a specific pair-copula decomposition of a multivariate distribution is of this simplified form. Moreover, we show that the simplified PCC in fact is a rather good approximation, even when the simplifying assumption is far from being fulfilled by the actual model.

Keywords: Copulae; Vines; Multivariate; distributions; Hierarchical; structures (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (58)

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