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A Comparison of Tail Dependence Estimators

Supper, Hendrik; Irresberger, Felix; Weiss, Gregor N.F.

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Authors

Hendrik Supper

Gregor N.F. Weiss



Abstract

We review several commonly used methods for estimating the tail dependence in a given data sample. In simulations, we show that especially static estimators produce severely biased estimates of tail dependence when applied to samples with time-varying extreme dependence. In some instances, using static estimators for time-varying data leads to estimates more than twice as high as the true tail dependence. Our findings attenuate the need to account for the time-variation in extreme dependence by using dynamic models. Taking all simulations into account, the dynamic tail dependence estimators perform best with the Dynamic Symmetric Copula (DSC) taking the lead. We test our findings in an empirical study and show that the choice of estimator significantly affects the importance of tail dependence for asset prices.

Citation

Supper, H., Irresberger, F., & Weiss, G. N. (2020). A Comparison of Tail Dependence Estimators. European Journal of Operational Research, 284(2), 728-742. https://doi.org/10.1016/j.ejor.2019.12.041

Journal Article Type Article
Acceptance Date Dec 27, 2019
Online Publication Date Jan 13, 2020
Publication Date 2020-07
Deposit Date Jul 23, 2020
Publicly Available Date Jan 13, 2022
Journal European Journal of Operational Research
Print ISSN 0377-2217
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 284
Issue 2
Pages 728-742
DOI https://doi.org/10.1016/j.ejor.2019.12.041
Public URL https://durham-repository.worktribe.com/output/1296782
Related Public URLs http://eprints.whiterose.ac.uk/155056/

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