Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088662 | Journal of Banking & Finance | 2015 | 17 Pages |
Abstract
We propose the use of convex combinations of parametric copulas as pair-copulas in high-dimensional vine copula models. By doing so, we circumvent the error-prone need to choose and estimate a parametric copula for each pair-copula in a vine model. We show in simulations that our proposed model fits the dependence structure in a given data sample significantly better than a competing benchmark. In our empirical study on the models' accuracy for forecasting the Value-at-Risk of financial portfolios, we show that our proposed mixture pair-copula construction yields significantly better results in backtesting while the benchmark overestimates portfolio risk.
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Gregor N.F. WeiÃ, Marcus Scheffer,