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	Approximation of bivariate copulas by patched bivariate Frechet copulas
	Zheng, Yanting ; Yang, Jingping ; Huang, Jianhua Z.
	2011
关键词	Bivariate Frechet copulas Patched bivariate Frechet copula Approximation of bivariate copulas Rainbow options ACTUARIAL SCIENCE COMONOTONICITY FINANCE
英文摘要	Bivariate Frechet (BF) copulas characterize dependence as a mixture of three simple structures: comonotonicity, independence and countermonotonicity. They are easily interpretable but have limitations when used as approximations to general dependence structures. To improve the approximation property of the BF copulas and keep the advantage of easy interpretation, we develop a new copula approximation scheme by using BF copulas locally and patching the local pieces together. Error bounds and a probabilistic interpretation of this approximation scheme are developed. The new approximation scheme is compared with several existing copula approximations, including shuffle of min, checkmin, checkerboard and Bernstein approximations and exhibits better performance, especially in characterizing the local dependence. The utility of the new approximation scheme in insurance and finance is illustrated in the computation of the rainbow option prices and stop-loss premiums. (C) 2010 Elsevier B.V. All rights reserved.; Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods; Statistics & Probability; SCI(E); SSCI; 4; ARTICLE; 2; 246-256; 48
语种	英语
出处	SCI
出版者	insurance mathematics economics
内容类型	其他
源URL	[http://hdl.handle.net/20.500.11897/240645]
专题	数学科学学院
推荐引用方式 GB/T 7714	Zheng, Yanting,Yang, Jingping,Huang, Jianhua Z.. Approximation of bivariate copulas by patched bivariate Frechet copulas. 2011-01-01.

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