Dowd Modeling dependence: correlations and copulas
3 important questions on Dowd Modeling dependence: correlations and copulas
When is correlation not a good measure of dependence?
For non-elliptical distributions
What is a copula
An alternative measure of dependence. It allows to take account of the dependence structure of our random variables.
Tail events are often related
Describe peaks-over-threshold (POT) approach and describe the difference compared to Generalized Extreme Value
Loss distribution in excess of a threshold. Advantae compared to Generalized Extreme Value (GEV):
- GEV involves another parameter
- Most popular GEV approaches can invole some loss of useful information as some block might have more than one extreme in them
Disdvantage of POT:
-Have to choose the threshold
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