2016/01/07 by G Marcon, Marcon, Giulia, Simone A. Padoan +2 · 1 citation
Economics, Econometrics and Finance · Mathematics · #FOS: Computer and information sciences #Financial Risk and Volatility Modeling #Methodology (stat.ME) #Monetary Policy and Economic Impact #Statistical Methods and Inference
paper · pdf · doi:10.48550/arxiv.1601.01462
openalex publication_date 2016/01/07 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
A simple approach for modeling multivariate extremes is to consider the vector of component-wise maxima and their max-stable distributions. The extremal dependence can be inferred by estimating the angular measure or, alternatively, the Pickands dependence function. We propose a nonparametric Bayesian model that allows, in the bivariate case, the simultaneous estimation of both functional representations through the use of polynomials in the Bernstein form. The constraints required to provide a valid extremal dependence are addressed in a straightforward manner, by placing a prior on the coefficients of the Bernstein polynomials which gives probability one to the set of valid functions. The prior is extended to the polynomial degree, making our approach fully nonparametric. Although the analytical expression of the posterior is unknown, inference is possible via a trans-dimensional MCMC scheme. We show the efficiency of the proposed methodology by means of a simulation study. The extremal behaviour of log-returns of daily exchange rates between the Pound Sterling vs the U.S. Dollar and the Pound Sterling vs the Japanese Yen is analysed for illustrative purposes.