Open AccessAn Econometric Study of Vine Copulas
Author(s) -
Pierre-André Maugis,
Dominique Guégan
Publication year - 2010
Publication title -
international journal of economics and finance
Language(s) - English
Resource type - Journals
eISSN - 1916-9728
pISSN - 1916-971X
DOI - 10.5539/ijef.v2n5p2
Subject(s) - vine copula , copula (linguistics) , estimator , econometrics , mathematics , multivariate statistics , tail dependence , vine , matching (statistics) , statistics , botany , biology
We present a new recursive algorithm to construct vine copulas based on an underlying tree structure. This new structure is interesting to compute multivariate distributions for dependent random variables. We prove the asymptotic normality of the vine copula parameter estimator and show that all vine copula parameter estimators have comparable variance. Both results are crucial to motivate any econometrical work based on vine copulas. We provide an application of vine copulas to estimate the VaR of a portfolio, and show they offer significant improvement as compared to a benchmark estimator based on a GARCH model.