Copula: A Primer for Fund Managers

Authors: Cheung, W.

Publisher: SSRN


Traditional equity risk models implicitly assumes normal return distributions. Market crises kept on reminding us that the normality assumption is insufficient in risk management. Moving away from normality requires a tractable technique to allow fitting of alternative distributions. Copula is a good choice since it helps modularise our job and enriches our distribution selection menu. This paper demystifies copulas for portfolio managers, and introduces a methodology for high-dimension non-normal market modelling.

Source: Manual