2023/04/13 by P. B. Lerner, Lerner, Peter B.
Economics, Econometrics and Finance · #Applications (stat.AP) #Complex Systems and Time Series Analysis #FOS: Computer and information sciences #FOS: Economics and business #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM)
paper · pdf · doi:10.48550/arxiv.2304.06859
openalex publication_date 2023/04/13 · openalex created_date 2023/04/19 · openalex updated_date 2026/07/28
Copulas are widely used in financial economics as well as in other areas of applied mathematics. Yet, there is much arbitrariness in their choice. The author proposes "a natural copula" concept, which minimizes Wasserstein distance between distributions in some space, in which both these distributions are embedded. Transport properties and hydrodynamic interpretation are discussed with two examples of distributions of financial significance. A natural copula can be parsimoniously estimated by the methods of linear programming.