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Pair-Copula Constructions for Financial Applications: A Review

Department of Statistical Analysis, Image Analysis and Machine Learning, Norwegian Computing Center, N-0314 Oslo, Norway
Academic Editor: Jean-David Fermanian
Econometrics 2016, 4(4), 43; https://doi.org/10.3390/econometrics4040043
Received: 1 September 2016 / Revised: 4 October 2016 / Accepted: 18 October 2016 / Published: 29 October 2016
(This article belongs to the Special Issue Recent Developments in Copula Models)
This survey reviews the large and growing literature on the use of pair-copula constructions (PCCs) in financial applications. Using a PCC, multivariate data that exhibit complex patterns of dependence can be modeled using bivariate copulae as simple building blocks. Hence, this model represents a very flexible way of constructing higher-dimensional copulae. In this paper, we survey inference methods and goodness-of-fit tests for such models, as well as empirical applications of the PCCs in finance and economics. View Full-Text
Keywords: pair-copula constructions; vines; dependence; conditional distribution; flexibility pair-copula constructions; vines; dependence; conditional distribution; flexibility
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Aas, K. Pair-Copula Constructions for Financial Applications: A Review. Econometrics 2016, 4, 43.

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