Year: 2023
Type: preprint
Abstract: Copulas are widely used in financial economics as well as in other areas of applied mathematics. Yet, there is much arbitrariness in their choice. The author proposes "a natural copula" concept, which minimizes Wasserstein distance between distributions in some space, in which both these distributions are embedded. Transport properties and hydrodynamic interpretation are discussed with two examples of distributions of financial significance. A natural copula can be parsimoniously estimated by the methods of linear programming.
Source: arXiv (Cornell University)
Author: Lerner, Peter B.
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4366197414