A new test procedure for the choice of dependence structure in risk measurement: application to the US and UK stock market indices

Jeungbo Shim, Eun-Joo Lee, Seung-Hwan Lee
Applied Economics,Vol. 48, Issue 15, Pages: 1382-1389.

The choice of an appropriate dependence structure in modelling multivariate risks is an important issue because different tail structure embedded in copula leads to a different capital requirement for the institution. We present how to select a well-specified dependence structure to given application data. Using a simple simulation technique, we develop a statistical test to assess the adequacy of a specific dependence structure. We examine the sensitivity of risk estimates to the choice of copulas using the S&P 500 and …
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