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What makes dependence modeling challenging? Pitfalls and ways to circumvent them
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Jan-Frederik Mai
Published/Copyright:
December 10, 2013
Abstract
We present a list of challenges one faces when given the task of modeling dependence between stochastic objects, with a special focus on financial applications. Our aim is to draw the readers' attention to common (and not so common) pitfalls and fallacies, and we particularly address readers who are new to dependence modeling. The presented list of challenges is clearly not complete, but it gives a flavor of how difficult and subtle the task of dependence modeling can be. Moreover, the readers shall get some intuition about what challenges are structural and cannot be overcome, and what challenges allow for a better solution than common practice might suggest.
Received: 2012-12-13
Accepted: 2013-8-18
Published Online: 2013-12-10
Published in Print: 2013-12-1
© 2013 by Walter de Gruyter Berlin Boston
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- Masthead
- Editorial
- Editorial to the special issue on Copulae of Statistics & Risk Modeling
- What makes dependence modeling challenging? Pitfalls and ways to circumvent them
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Keywords for this article
Dependence;
copula;
correlation;
financial modeling;
portfolio credit risk
Articles in the same Issue
- Masthead
- Masthead
- Editorial
- Editorial to the special issue on Copulae of Statistics & Risk Modeling
- What makes dependence modeling challenging? Pitfalls and ways to circumvent them
- Risk management with high-dimensional vine copulas: An analysis of the Euro Stoxx 50
- Bernstein estimator for unbounded copula densities
- Dynamic structured copula models
