Nonparametric estimation of general multivariate tail dependence and applications to financial time series

Yuri Salazar, Wing Lon Ng*

*Corresponding author for this work

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

In order to analyse the entire tail dependence structure among random variables in a multidimensional setting, we present and study several nonparametric estimators of general tail dependence functions. These estimators measure tail dependence in different orthants, complementing the commonly studied positive (lower and upper) tail dependence. This approach is in line with the parametric analysis of general tail dependence. Under this unifying approach the different dependencies are analysed using the associated copulas. We generalise estimators of the lower and upper tail dependence coefficient to the general multivariate tail dependence function and study their statistical properties. Tail dependence measures come as a response to the incapability of the correlation coefficient as an extreme dependence measure. We run a Monte Carlo simulation study to assess the performance of the nonparametric estimators. We also employ selected estimators in two empirical applications to detect and measure the general multivariate non-positive tail dependence in financial data, which popular parametric copula models commonly applied in the financial literature fail to capture.

Original languageEnglish
Pages (from-to)121-158
Number of pages38
JournalStatistical Methods and Applications
Volume24
Issue number1
DOIs
Publication statusPublished - 1 Mar 2015

Keywords

  • Copula
  • Financial asset returns
  • Nonparametric estimation
  • Tail dependence

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