Copula Modeling: An Introduction for Practitioners

Abstract

This article explores the copula approach for econometric modeling of joint parametric distributions. Although theoretical foundations of copulas are complex, this text demonstrates that practical implementation and estimation are relatively straightforward. An attractive feature of parametrically specified copulas is that estimation and inference are based on standard maximum likelihood procedures, and thus copulas can be estimated using desktop econometric software. This represents a substantial advantage of copulas over recently proposed simulation-based approaches to joint modeling.

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