Bayesian model selection for D-vine pair-copula constructions

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Abstract

In recent years analyses of dependence structures using copulas have become more popular than the standard correlation analysis. Starting from Aas et al. (2009) regular vine pair-copula constructions (PCCs) are considered the most flexible class of multivariate copulas. PCCs are involved objects but (conditional) independence present in data can simplify and reduce them significantly. In this paper the authors detect (conditional) independence in a particular vine PCC model based on bivariate t copulas by deriving and implementing a reversible jump Markov chain Monte Carlo algorithm. However, the methodology is general and can be extended to any regular vine PCC and to all known bivariate copula families. The proposed approach considers model selection and estimation problems for PCCs simultaneously. The effectiveness of the developed algorithm is shown in simulations and its usefulness is illustrated in two real data applications.

Original languageEnglish
Pages (from-to)239-258
Number of pages20
JournalCanadian Journal of Statistics
Volume39
Issue number2
DOIs
StatePublished - Jun 2011

Keywords

  • Bayesian analysis
  • Copula
  • D-vine
  • Pair-copula constructions
  • Reversible jump Markov chain Monte Carlo

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