Financial Markets and Portfolio Management

, Volume 24, Issue 2, pp 193–213

Pair-copulas modeling in finance

  • Beatriz Vaz de Melo Mendes
  • Mariângela Mendes Semeraro
  • Ricardo P. Câmara Leal
Article

DOI: 10.1007/s11408-010-0130-1

Cite this article as:
Vaz de Melo Mendes, B., Mendes Semeraro, M. & P. Câmara Leal, R. Financ Mark Portf Manag (2010) 24: 193. doi:10.1007/s11408-010-0130-1

Abstract

This paper concerns itself with applications of pair-copulas in finance, and bridges the gap between theory and application. We provide a broad view of the problem of modeling multivariate financial log-returns using pair-copulas, gathering together for this purpose theoretical and computational results from the literature on canonical vines. From the practitioner’s viewpoint, the paper shows the advantages of modeling through pair-copulas and makes clear that it is possible to implement this methodology on a daily basis. All the necessary steps (model selection, estimation, validation, simulations, and applications) are discussed at a level easily understood by all data analysts.

Keywords

Pair-copulas Multivariate modeling Markowitz mean variance model 

JEL Classification

C16 C51 G11 

Copyright information

© Swiss Society for Financial Market Research 2010

Authors and Affiliations

  • Beatriz Vaz de Melo Mendes
    • 1
  • Mariângela Mendes Semeraro
    • 1
  • Ricardo P. Câmara Leal
    • 2
  1. 1.IM/COPPEADFederal University at Rio de JaneiroRio de JaneiroBrazil
  2. 2.COPPEADFederal University at Rio de JaneiroRio de JaneiroBrazil

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