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Shape-based scenario generation using copulas

Kaut, Michal and Wallace, Stein W (2011) Shape-based scenario generation using copulas. Computational Management Science, 8 (1-2). pp. 181-199. ISSN 1619-6988

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Abstract

The purpose of this article is to show how the multivariate structure (the “shape” of the distribution) can be separated from the marginal distributions when generating scenarios. To do this we use the copula. As a result, we can define combined approaches that capture shape with one method and handle margins with another. In some cases the combined approach is exact, in other cases, the result is an approximation. This new approach is particularly useful if the shape is somewhat peculiar, and substantially different from the standard normal elliptic shape. But it can also be used to obtain the shape of the normal but with margins from different distribution families, or normal margins with for example tail dependence in the multivariate structure. We provide an example from portfolio management. Only one-period problems are discussed.

Item Type: Article
Journal or Publication Title: Computational Management Science
Subjects: H Social Sciences > HB Economic Theory
Departments: Lancaster University Management School > Management Science
ID Code: 45656
Deposited By: ep_importer_pure
Deposited On: 11 Jul 2011 19:35
Refereed?: Yes
Published?: Published
Last Modified: 09 Apr 2014 22:35
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/45656

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