Serving the Quantitative Finance Community

Gracely
Posts: 7
Joined: July 11th, 2003, 12:05 pm

### What are copulas and how are they used in quantitative finance?

Going back to CGumble1.85(0.91,0.958523)=0.90. This guarantees that we will always choose the points on the upper tail, where both u and v are close to 1. How about lower tail? Or other points that are unusual while one, either u or v, is usual? I am really confused about this 90% boundary issue... How do we reconcile what we see in the contour plot of a joint distribution, where contour curves are oval-like (not necessarily an oval), with the level curves of a cumulative distribution function of a copula?

mrmelchi
Posts: 26
Joined: July 14th, 2002, 3:00 am

### What are copulas and how are they used in quantitative finance?

You wrote:Let's see if I get it correct - Assume Gumbel copula with theta 1.85, there is a 90% probability that v < 0.958523 conditional on u = 0.91. Assume Gumbel copula with theta 1.85, there is a 90% probability that v <= 0.958523 conditional on u <= 0.91. You wrote:But why set u > C(u,v) = 0.91?When u tends to Copula´s value v tends to 1 and vice versa.

virus
Posts: 119
Joined: September 5th, 2003, 9:03 pm

### What are copulas and how are they used in quantitative finance?

Copula's are also used to calculate VAR ....aggregating across different risk distributions

taeglich
Posts: 1
Joined: October 25th, 2003, 5:14 am

### What are copulas and how are they used in quantitative finance?

Last edited by taeglich on October 24th, 2003, 10:00 pm, edited 1 time in total.

MrQuant
Posts: 48
Joined: February 21st, 2003, 11:17 pm

### What are copulas and how are they used in quantitative finance?

I have a spread sheet for Gumbel copula. Do any body have spreadsheet for Archimedian, T-copula ....etc?I can have a swap deal with him/her.

mrmelchi
Posts: 26
Joined: July 14th, 2002, 3:00 am

### What are copulas and how are they used in quantitative finance?

MrQuant:Give me your e-mail account, so I can send you the spreadsheets.Mario Melchiori

MrQuant
Posts: 48
Joined: February 21st, 2003, 11:17 pm

### What are copulas and how are they used in quantitative finance?

yawhueiw
Posts: 1
Joined: November 11th, 2003, 8:42 am

### What are copulas and how are they used in quantitative finance?

QuoteOriginally posted by: pb273Copulas can be used to model joint distribution of multiple securities. Their most commonly reported academic usage is for risk-management in credit derivatives, insurance and event risk areas - however it doesn't do justification to the uses that it can be put to. It can be used to pair trading and statistical arbitrage modeling. Two of the most common types of copulas are the archimedian copulas and the elliptical copulas. For stocks in sectors where is a linkage or significant degree of co-movement (eg. software, semiconductor etc), elliptical copulas can be used to model joint movement. In sectors, where there is a lot of event risk of individual stocks, ex. say pharma companies which can rise or fall depending on whether it got some drug approval or won some court case on a pending patent litigation etc, archimedian copulas can be used. Now the question that can arise is "okay! i modelled the joint movement by a copula, now how do i make money out of them?" - one way which can be explored ... is to define a boundary within which say 90% of the time the joint movement lies, for instance an ellipse in the case of an elliptical copula and then whenever the joint-movement of the securities is outside the ellipse one can use options+futures (not pure futures as they are linear) and possibly other non-linear derivatives (barriers etc) that will make money if the joint-movement travels within the ellipse after some time etc .Hello pb273Could you explain your idea about how to make money out of them in more details please?

Chukchi
Posts: 915
Joined: December 15th, 2001, 3:43 am

### What are copulas and how are they used in quantitative finance?

Copula Methods in FinanceHardcover: 512 pages Publisher: John Wiley & Sons; (February 2004) ISBN: 0470863447

Gaita
Posts: 2
Joined: January 19th, 2004, 2:57 pm

### What are copulas and how are they used in quantitative finance?

mc
Posts: 11
Joined: October 8th, 2002, 6:53 pm

### What are copulas and how are they used in quantitative finance?

I would also enjoy seeing the spreadsheet. Could you send to lmac50@yahoo.com?Thanks

GusMagal
Posts: 18
Joined: March 27th, 2003, 7:02 am

### What are copulas and how are they used in quantitative finance?

Mario - is your s/s still available?I wouldn't mind in having it.Many thanks,gmagalhaes@bloomberg.net

hasare
Posts: 10
Joined: July 14th, 2002, 3:00 am
Location: New York

### What are copulas and how are they used in quantitative finance?

mrmelchi
Posts: 26
Joined: July 14th, 2002, 3:00 am

### What are copulas and how are they used in quantitative finance?

Try Which Archimedean Copula is the Right One? .I hope it helps.
Last edited by mrmelchi on April 3rd, 2006, 10:00 pm, edited 1 time in total.

bompaholm
Posts: 49
Joined: September 29th, 2003, 7:55 am

### What are copulas and how are they used in quantitative finance?

Convert the Copula(u,v) = [0,1] to "price" for assets when calculating for VaR? Hello! Have a urgent matter which I doesn't understand how to solve. Many Copula articles use VaR to see how good and accurate the copula mesure is. No problem with that.. That gives us a value between [0,1]in return for many articles. Rank, Jorion and others.. But HOW? do one convert these u and v number betweeb 0 and 1 to prices for the assets? To therby see the change from t to t+1.. and to use the VaR mesure?The calculation of the prices to Copula(u,v) isn't any problem but how do I calculate them to the Value at Risk value?
Last edited by bompaholm on April 17th, 2004, 10:00 pm, edited 1 time in total.