The shipping crisis starting in 2008 was characterized by sharply decreasing freight rates and sharply increasing financing costs. We analyze the dependence structure of these two risk factors employing a conditional copula model. As conditioning factors we use the supply and demand of seaborne...

Theoretical credit risk models a la Merton (1974) predict a non-linear negative link between a firm's default likelihood and asset value. This motivates us to propose a flexible empirical Markov-switching bivariate copula that allows for distinct time-varying dependence between credit default...

This paper examines whether investors receive compensation for holding crash-sensitive stocks. We capture the crash sensitivity of stocks by their lower tail dependence (LTD) with the market based on copulas. We find that stocks with strong LTD have higher average future returns than stocks with...

In this paper, we investigate dependent risk models in which the dependence structure is defined by an Archimedean copula. Using such a structure with specific marginals, we derive explicit expressions for the pdf of the aggregated risk and other related quantities. The common mixture...

In this paper we introduce a new model, based on the synthesis of conditional copulas and Gaussian graphical models under a copula -- vine framework. The use of the copula vine permits each pair between the market and a stock to have their own dynamics. In that case the asset keeps its...

Copula functions have become the standard tool in modelling multivariate dependence over the last decade hence there are toolboxes available for simulating and estimating copulas in the major statistical software such as R/S+, SAS and MATLAB. However recent developments in copulas like copula...

DSGE models may be misspecified in many dimensions, which can affect their forecasting performance. To correct for these misspecifications we can apply conditional information from other models or judgment. Conditional information is not accurate, and can be provided as a probability...

Sorting and spillovers can create correlation in individual outcomes. In this situation, standard discrete choice estimators cannot consistently estimate the probability of joint and conditional events, and alternative estimators can yield incoherent statistical models or intractable estimators....

Several models of how to price synthetic CDOs are presented. The study focuses on comparison of classical Gaussian copula with NIG copula, double t-copula and gaussian stochastic correlation model. Because the the t-copula is technically the most demanding of the presented approaches and usually...

The recently introduced German wind power futures have brought the opportunity to address the problem of volume risk in wind power generation directly. In this paper, we study the hedging benefits of these instruments in the context of gas-fired power plants by employing a strategy that allows...