Nonparametric estimation of pair-copula constructions with the empirical pair-copula

Details Nonparametric estimation of pair-copula constructions with the empirical pair-copula Nonparametric estimation of pair-copula constructions with the empirical pair-copula

2012-01-24

arxiv.org/abs/1201.5133v1

Statistics

Methodology

23 pages, 7 figures

Scientific paper

A pair-copula construction is a decomposition of a multivariate copula into a structured system, called regular vine, of bivariate copulae or pair-copulae. The standard practice is to model these pair-copulae parametrically, which comes at the cost of a large model risk, with errors propagating throughout the vine structure. The empirical pair-copula proposed in the paper provides a nonparametric alternative still achieving the parametric convergence rate. It can be used as a basis for inference on dependence measures, for selecting and pruning the vine structure, and for hypothesis tests concerning the form of the pair-copulae.

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