Dynamic Copula Processes

33 Pages Posted: 27 May 2010

See all articles by Alain G. Galli

Alain G. Galli

Cerna Mines-Paristech

Margaret Armstrong

FGV EMAp; Cerna Mines-Paristech

Daniel Totouom

BNP Paribas

Date Written: May 25, 2010

Abstract

This paper presents a flexible new family of copula-based multivariate models designed for handling large numbers of variables (1) as random vectors in the static case or (2) as vector stochastic processes in the dynamic case. The family includes models with upper and lower tail dependence. Variables need not be exchangeable. To illustrate the model’s potential; three radically different examples have been constructed: a straight additive model, an additive conditional gamma model and a switching model. Archimedean copulas turn out to be a special case of the general model. Another advantage of these models it that it is easy to construct dynamic versions of the static copulas. Lastly, as these models are defined in a conditional independence framework, they are easy to simulate.

Keywords: Key words: Copulas, Archimedean, Tail dependence, Pearson process, Affine processes, CIR process, multivariate Laplace transform

Suggested Citation

Galli, Alain G. and Armstrong, Margaret and Armstrong, Margaret and Totouom, Daniel, Dynamic Copula Processes (May 25, 2010). Available at SSRN: https://ssrn.com/abstract=1616503 or http://dx.doi.org/10.2139/ssrn.1616503

Alain G. Galli (Contact Author)

Cerna Mines-Paristech ( email )

60 bd St Michel
Paris, 75006
France

Margaret Armstrong

FGV EMAp ( email )

190 Praia de Botafogo
Rio de Janeiro, 22250-900
Brazil

Cerna Mines-Paristech ( email )

60 bd St Michel
Paris, 75006
France
33140519313 (Phone)
33140519145 (Fax)

Daniel Totouom

BNP Paribas ( email )

Paris
France

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