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Multivariate Hierarchical Copulas with Shocks

Fabrizio Durante, Marius Hofert () and Matthias Scherer ()
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Marius Hofert: Ulm University
Matthias Scherer: Technische Universität München

Methodology and Computing in Applied Probability, 2010, vol. 12, issue 4, 681-694

Abstract: Abstract A transformation to obtain new multivariate hierarchical copulas, starting with an arbitrary copula, is introduced. In addition to the hierarchical structure, the presented construction principle explicitly supports singular components. These may be interpreted as the effect of local or global shocks to the underlying random variables. A large spectrum of dependence patterns can be achieved by the presented transformation, which seems promising for practical applications. Moreover, copulas arising from this construction are similarly admissible with respect to analytical tractability and sampling routines as the original copula. Finally, several well-known families of copulas may be interpreted as special cases.

Keywords: Copula; Hierarchical structure; Marshall-Olkin distribution; Shock model; Singular component; 60E05; 62H99; 65C10; 65C99; 91B70 (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1007/s11009-009-9134-6

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