Copulas and Dependence Modeling

Authored by: Thierry Roncalli

Handbook of Financial Risk Management

Print publication date:  April  2020
Online publication date:  April  2020

Print ISBN: 9781138501874
eBook ISBN: 9781315144597
Adobe ISBN:


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One of the main challenges in risk management is the aggregation of individual risks. We can move the issue aside by assuming that the random variables modeling individual risks are independent or are only dependent by means of a common risk factor. The problem becomes much more involved when one wants to model fully dependent random variables. Again a classic solution is to assume that the vector of individual risks follows a multivariate normal distribution. However, all risks are not likely to be well described by a Gaussian random vector, and the normal distribution may fail to catch some features of the dependence between individual risks.

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