I am sorry! (&BACK)_Ok, still not back....
NONETHELESS, this is my reply to Shillington on ST9 thread started by Viki2010 "Methods for Risk Aggregation"
Point 1, there is no Copula called correlation matrix. You are trying to say that they do the same thing, otherwise they are different things;- one is calibrated by linear dependence, the other by non-linear dependence.
Point 2;- (strong)
Whenever you use a correlation matrix “you are applying the copula corresponding to a multivariate normal distribution” (posted by you)
A strict requirement is that a multivariate normal distribution is made up of normal marginals – (my point; you can’t use pareto)!
Now a correlation matrix is pearson’s rho hence you can never use rank correlation. See example below;-
[3 5]*[1 0.25]*[3]
[0.25 1] [5]
= sum of squares, this is just;-you can test 3^2+5^2+2*p*3*5. Use p say 0.25. The p in x^2+y^2+2*p*xy is strictly pearson’s rho. (My point; you can’t use rank correlation)
P.S;-
Kendall’s Tau, Spearman’s rho are used in the calibration of a COPULA to define a dependence structure.
Point 3;- The comment is not as digital as you make it seem.
Point 4;- I don’t get the hello, was it originally posted by me?
((Let me know If I should expand...))
Last edited by a moderator: Feb 16, 2015