Financial Applications of Copula Functions
RISK MEASURES FOR THE 21ST CENTURY, Par Giorgio Szego, ed., John Wiley & Sons, 2004
26 Pages Posted: 26 Nov 2007
Abstract
Copula functions have been introduced recently in finance. They are a general tool to construct multivariate distributions and to investigate dependence structure between random variables. In this paper, we show that copula functions may be extensively used to solve many financial problems. As examples we show how to monitor the market risk of basket products, to measure the credit risk of a large pool of loans and to compute capital requirements for operational risk.
Keywords: copula, risk management, market risk, credit risk, operational risk.
JEL Classification: G00
Suggested Citation: Suggested Citation
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