Providing software solutions since 1976
Econometrics and Time Series Papers
Modeling Financial Risk Factor Correlation with the COPULA Procedure
Jan Chvosta, Donald J. Erdman, and Mark Little; SAS Institute 2011
Abstract
Two keys to measuring and controlling the risk inherent in financial securities are (1) understanding the volatility of economic factors on which the value of the portfolio depends and (2) understanding how changes in those economic factors are related to each other. Recent progress in the mathematical technique of “copula” functions offers a powerful new approach to modeling dependencies among numerous risk factors. This paper explains how the new SAS/ETS® COPULA procedure performs copula modeling and shows examples of using copula models for risk management problems.
