How simplifying and flexible is the simplifying assumption in pair-copula constructions -- analytic answers in dimension three and a glimpse beyond

DOI10.1214/21-EJS1832zbMATH Open1471.62359arXiv2006.06542WikidataQ114599190 ScholiaQ114599190MaRDI QIDQ2044366FDOQ2044366

Wolfgang Trutschnig, Thomas A. Mroz, Sebastian Fuchs

Publication date: 9 August 2021

Published in: Electronic Journal of Statistics (Search for Journal in Brave)

Abstract: Motivated by the increasing popularity and the seemingly broad applicability of pair-copula constructions underlined by numerous publications in the last decade, in this contribution we tackle the unavoidable question on how flexible and simplifying the commonly used `simplifying assumption' is from an analytic perspective and provide answers to two related open questions posed by Nagler and Czado in 2016. Aiming at a simplest possible setup for deriving the main results we first focus on the three-dimensional setting. We prove that the family of simplified copulas is flexible in the sense that it is dense in the set of all three-dimensional co-pulas with respect to the uniform metric $d_{i}nfty$ - considering stronger notions of convergence like the one induced by the metric $D_1$, by weak conditional convergence, by total variation, or by Kullback-Leibler divergence, however, the family even turn out to be nowhere dense and hence insufficient for any kind of flexible approximation. Furthermore, returning to $d_{i}nfty$ we show that the partial vine copula is never the optimal simplified copula approximation of a given, non-simplified copula $C$, and derive examples illustrating that the corresponding approximation error can be strikingly large and extend to more than 28% of the diameter of the metric space. Moreover, the mapping $psi$ assigning each three-dimensional copula its unique partial vine copula turns out to be discontinuous with respect to $d_{i}nfty$ (but continuous with respect to $D_1$ and to weak conditional convergence), implying a surprising sensitivity of partial vine copula approximations. The afore-mentioned main results concerning $d_{i}nfty$ are then extended to the general multivariate setting.

Full work available at URL: https://arxiv.org/abs/2006.06542

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zbMATH Keywords

dependencepair-copula constructionsimplifying assumptionconditional distributionMarkov kernel

Mathematics Subject Classification ID

Foundations and philosophical topics in statistics (62A01) Characterization and structure theory for multivariate probability distributions; copulas (62H05)

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Cited In (10)

• On a multivariate copula-based dependence measure and its estimation
• Study of partial and average conditional Kendall's tau
• On distributions with fixed marginals maximizing the joint or the prior default probability, estimation, and related results
• A novel positive dependence property and its impact on a popular class of concordance measures
• Testing the simplifying assumption in high-dimensional vine copulas
• Quantifying directed dependence via dimension reduction
• Revisiting the region determined by Spearman's \(\rho\) and Spearman's footrule \(\phi\)
• Time series models with infinite-order partial copula dependence
• On convergence of associative copulas and related results
• Total positivity of copulas from a Markov kernel perspective

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