Modelling random vectors of dependent risks with different elliptical components

In Finance and Actuarial Science, the multivariate elliptical family of distributions is a famous and well-used model for continuous risks. However, it has an essential shortcoming: all its univariate marginal distributions are the same, up to location and scale transformations. For example, all marginals of the multivariate Student’s t-distribution, an important member of the elliptical family, have the same number of degrees of freedom. We introduce a new approach to generate a multivariate distribution whose marginals are elliptical random variables, while in general, each of the risks has different elliptical distribution, which is important when dealing with insurance and financial data. The proposal is an alternative to the elliptical copula distribution where, in many cases, it is very difficult to calculate its risk measures and risk capital allocation. We study the main characteristics of the proposed model: characteristic and density functions, expectations, covariance matrices and expectation of the linear regression vector. We calculate important risk measures for the introduced distributions, such as the value at risk and tail value at risk, and the risk capital allocation of the aggregated risks.

Modelling High Dimensional Paddy Production Data using Copulas

As the climate change is likely to be adversely affecting the yield of paddy production, thence it has brought a limelight of the probable challenges on human particularly regional food security issues. This paper aims to fit multivariate time series of paddy production variables using copula functions and predicts the next year event based on the data of five countries in southeast Asia. In particular, the most appropriate marginal distribution for each univariate time series was first identified using maximum likelihood parameter estimation method. Next, we performed multivariate copula fitting using two types of copula families, namely, elliptical copula family and Archimedean copula family. Elliptical copula family studied are normal and t copula, while Archimedean copula family considered are Joe, Clayton and Gumbel copulas. The performance of marginal distribution and copula fitting was examined using Akaike information criterion (AIC) values. Finally, we used the best fitted copula model to forecast the succeeding event. In order to assess the performance of copula function, we computed the forecast means and estimation errors of copula function with a generalized autoregressive conditional heteroskedasticity model as reference group. Based on the smallest AIC, the majority of the data favoured the Gumbel copula, which belongs to Archimedean copula family as well as extreme value copula family. Likewise, applying the historical data to forecast the future trends may assist all relevant stakeholders, for instance government, NGO agencies, and professional practitioners in making informed decisions without compromising the environmental as well as economical sustainability in the region.