Bayesian Model Choice of Grouped t-copula

Details Bayesian Model Choice of Grouped t-copula Bayesian Model Choice of Grouped t-copula

2011-03-03

arxiv.org/abs/1103.0606v1

Economy

Quantitative Finance

Computational Finance

Scientific paper

10.1007/s11009-011-9220-4

One of the most popular copulas for modeling dependence structures is t-copula. Recently the grouped t-copula was generalized to allow each group to have one member only, so that a priori grouping is not required and the dependence modeling is more flexible. This paper describes a Markov chain Monte Carlo (MCMC) method under the Bayesian inference framework for estimating and choosing t-copula models. Using historical data of foreign exchange (FX) rates as a case study, we found that Bayesian model choice criteria overwhelmingly favor the generalized t-copula. In addition, all the criteria also agree on the second most likely model and these inferences are all consistent with classical likelihood ratio tests. Finally, we demonstrate the impact of model choice on the conditional Value-at-Risk for portfolios of six major FX rates.

Affiliated with

Also associated with

No associations

Rating

Bayesian Model Choice of Grouped t-copula does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Bayesian Model Choice of Grouped t-copula, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Bayesian Model Choice of Grouped t-copula will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-588723