Paths and indices of maximal tail dependence

Edward Furman; Jianxi Su; Ričardas Zitikis

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arXiv · 1405.1326

Paths and indices of maximal tail dependence

Edward Furman·Jianxi Su·Ričardas Zitikis

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Abstract

We demonstrate both analytically and numerically that the existing methods for measuring tail dependence in copulas may sometimes underestimate the extent of extreme co-movements of dependent risks and, therefore, may not always comply with the new paradigm of prudent risk management. This phenomenon holds in the context of both symmetric and asymmetric copulas with and without singularities. As a remedy, we introduce a notion of paths of maximal (tail) dependence and utilize it to propose several new indices of tail dependence. The suggested new indices are conservative, conform with the basic concepts of modern quantitative risk management, and are able to distinguish between distinct risky positions in situations when the existing indices fail to do so.

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math.PR math.ST q-fin.RM q-fin.ST stat.ME stat.TH

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BibTeX RIS

Edward Furman, Jianxi Su, Ričardas Zitikis. 2014-05-06. Paths and indices of maximal tail dependence. https://arxiv.org/abs/1405.1326

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