Copulas for Risk Management

Traditional correlation-based approach under
normality to dependence modeling is no longer
adequate, as dependence of extreme events must be
modeled and the scale-invariant measures of
dependence might be considered. With this problem in
popularity has come a rise in the need for modeling
multivariate dependence with various types of
dependence structure. In recent years there has been
increasing applications of copulas in many fields.
The copula-based approach is implemented by
specifying the margins and the dependence structure
represented by a certain type of copula function.
Firstly, the stable distribution is considered
contrary to the customarily adopted ones on marginal
specifications. Secondly, two elliptical copulas and
three most commonly used families of Archimedean
copulas are employed in parameter estimation and
model selection. This book reviews some related
academic literatures, gives references for further
reading for methodology, provides financial
applications of copulas in risk management, offers a
many-faceted comparison and discussions on
dependence modeling, and suggests some directions
for further research.