36
3.2 Why copulas and which copulas?
3.2.1 Advantages of the copula approach
Among many approaches in the sensitivity analysis, the copula approach is partic-
ularly appealing to our research. One of the advantages is that by using copula
functions, the joint distribution of two variables can be obtained without the require-
ment of knowledge of the marginal distributions. Such attribute is naturally suitable
in estimating the joint distribution of events and dependent censoring, a critical step
to derive the conditional probability of survival (See Section 3.3.2 for details).
Another advantage of copulas that benefits this research is their flexibilities. Ex-
tensive copula functions have been well studied (Nelson, 2006, and see Section 2.3
for details). The wide range of copula functions serves versatile needs on modeling
joint distributions of events and dependent censoring. In addition, some fundamental
research of applying copula functions to study financial data has been published re-
cently (Li, 2000; Cherubini et al, 2004), which provides further insights into the ways
of utilizing flexibilities of copulas.
3.2.2 Which copula function to use?
Previous studies demonstrate that, in contrast to choosing an incorrect copula func-
tion, falsely assuming the value of Kendall’s τ leads to a much more severe bias in
parameter estimates. For instance, setting τ,s value as zero (assuming independent
More intriguing information
1. The name is absent2. Public-Private Partnerships in Urban Development in the United States
3. The name is absent
4. Non-farm businesses local economic integration level: the case of six Portuguese small and medium-sized Markettowns• - a sector approach
5. Regionale Wachstumseffekte der GRW-Förderung? Eine räumlich-ökonometrische Analyse auf Basis deutscher Arbeitsmarktregionen
6. The quick and the dead: when reaction beats intention
7. The name is absent
8. A NEW PERSPECTIVE ON UNDERINVESTMENT IN AGRICULTURAL R&D
9. Corporate Taxation and Multinational Activity
10. Measuring and Testing Advertising-Induced Rotation in the Demand Curve