Copula – modeling bivariate structural dependence

The word ‘copula’ originates from the Latin noun for a “link or tie” that connects two different things. Over the last decade or so, Copulas have found a niche in Economics and Finance for risk modeling of complex bivariate relationships. More broadly, these models can address structural dependencies in joint distributions that are rather surprising and useful. Matlab has a nice tool to explore these matters. Check out: Alternatively, more specialized programs to deal with multivariate copulas and maximum likelihood estimation can be found in the R programs: copula, fgac, mlCopulaSlection, and msgcop.

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