PresentationOct.pptVIP

Modelling with parameter-mixture copulas October 2006 Xiangyuan Tommy Chen Econometrics Business Statistics The University of Sydney xche9124@mail.usyd.edu.au Supervisor: Murray D Smith I Introduction Copulas: A function that binds together univariate marginal distributions, to form a multivariate distribution. E.g. A bivariate copula C(u,v), with domain (0≤u ≤1) and (0≤v ≤1), binds two marginal distribution functions F (x) and G (y) to produce a bivariate distribution function: I Introduction Parameter mixing A hierarchical model: the parent distribution function with parameter θ Assume parameter not constant, but follows a distribution with pdf : Then X has the following mixture distribution function: Famous example: the Beta-Binomial distribution: In the Binomial(n,p) distribution, assume the success probability p has a Beta(a,b) distribution. This mixing generates a 3-parameter distribution (n,a,b). II Past Research Copulas: Large body of work on theory and application of copulas. A flexible way of modelling correlation. Mixture distributions: Used to generate many new models. Mixture copulas: Small literature. Nelsen (1999): copula after mixing is still a copula. Mikusinski et al (1991): probabilistic interpretation; uniform mixture of “shuffles of C”. Ferguson (1995): models from uniform mixtures of “shuffles of C”. Two major deficiencies: Relationship between mixture copulas and parent copulas. Modelling with mixture copulas other than uniform mixtures of “shuffles of C”. III. Properties of mixture copulas Question: Does mixing applied to dependence parameters introduce useful new copulas? Do mixture copulas have desirable properties? What is the relationship between mixture copulas and their parents? III. Properties of mixture copulas Mixing applied to several copula families which are useful in modelling: Ali-Mikhail-Haq (AMH) Farlie-Gumbel-Morgenstern (FGM) Gumbel-Barnett These distributions were mixed with: Beta distribution Othe