Modeling asymmetry and tail dependence among multiple variables by using partial regular vine

Publication Type:
Conference Proceeding
Citation:
SIAM International Conference on Data Mining 2014, SDM 2014, 2014, 2 pp. 776 - 784
Issue Date:
2014-01-01
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Copyright © SIAM. Modeling high-dimensional dependence is widely studied to explore deep relations in multiple variables particularly useful for financial risk assessment. Very often, strong restrictions are applied on a dependence structure by existing high-dimensional dependence models. These restrictions disabled the detection of sophisticated structures such as asymmetry, upper and lower tail dependence between multiple variables. The paper proposes a partial regular vine copula model to relax these restrictions. The new model employs partial correlation to construct the regular vine structure, which is algebraically independent. This model is also able to capture the asymmetric characteristics among multiple variables by using two-parametric copula with flexible lower and upper tail dependence. Our method is tested on a cross-country stock market data set to analyse the asymmetry and tail dependence. The high prediction performance is examined by the Value at Risk, which is a commonly adopted evaluation measure in financial market.
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