Assignment X3 - Q3.4 (iv)

[KhoaDNguyen]

Hi everyone,

In Assignment X3 Q3.4 (iv) Discuss the appropriateness of Clayton Copula, the solution state: "Clayton copula is appropriate if we believe that the two suppliers are likely to behave the similarly at low levels of probability of ruin, but unlikely to behave similarly at higher probabilities."

I thought Clayton is lower tail dependence means that the supplier behave similarly way at higher probability of ruin. Am I misunderstanding anything?

Thanks for your help!

 

[Simon James]

Lower tail dependence describes what happens in the lower left hand corner of a copula plot - this represents the points at which u and v are very small - ie very low probabilities of occurrence. Upper tail dependence would represent similar behaviour at high levels of probability of ruin (eg Gumbel copula)

 

[KhoaDNguyen]

Lower tail dependence describes what happens in the lower left hand corner of a copula plot - this represents the points at which u and v are very small - ie very low probabilities of occurrence. Upper tail dependence would represent similar behaviour at high levels of probability of ruin (eg Gumbel copula)

Thank you for your reply.