Gaussian copula

[benzbubblecat]

"very stubby shaft"

[lukegranger89]

@benzbubblecat u makin a sexual references

[RefUser]

how did you make the graph?

[bionicturtledotcom]

@RefUser It's just excel (assuming you don't mean the officedraw or conceptdraw at the beginning). And I do (totally) agree with oringent's technical criticism: it's really a graph of bivariate normal pdf. Thanks David

[RefUser]

@bionicturtledotcom could you please be more spesific? unfortunately, i never did these kind of graphs before...

[bionicturtledotcom]

@RefUser as it's an approximation, i can't describe the calcs in < 500 characters (nor do i have the time). But i add a link to the XLS. I think i can share files now by linking to the dropbox file, so look for the excel soon, thanks, David

[RefUser]

@bionicturtledotcom thanks!

[oringent]

For a correct explanation of Gaussian Copula see Wikipedia. Incidentally, a copula is not a density (as graphed here) but a cumulative distribution function with support in some "n dimensional [0,1] space"

[oringent]

What you are graphing there is actually not the copula but the bivariate normal pdf. The marginals of the copula are continuous uniform[0,1] distributions. The whole idea of copulas is to isolate the dependence structure from the marginals. It is completely irrelevant weather or not financial returns are normal. Using Gaussian Copulas to model financial assets does not make this assumption, it only makes the assumption that the dependence structure is well approximated by the Gaussian copula.

[Sail17]

great explanation

[smt52]

For a cool interactive version of the gaussian copula, with sliders to change the parameters and see how the 3-D surface responds, see demonstrations at wolfram dot com/TheBivariateNormalDistribu­tion/

[UMMChineseClass]

Excellent! Very clear explanation. The normality assumption is the major reason why Gaussian copula failed, but there are Student, Frank and Clayton-Gumbel copulas that do not assume normality, right?

[deskset24]

You or anyone else has got to be kidding for blaming a mathematical technique, such as the Gaussian copula, for the "credit crisis" or any other financial crisis. The cause of the worldwide depression and massive poverty is pure and simple: greed (by the bankers & corporate welfarists & CEOs) and stupidity by the trash who vote for them. These financial crises were DELIBERATELY ENGINEERED!

[jaymz699]

@deskset24 that doesn't even make sense on the common sense level. So what you're saying is that the direct stakeholders in the financial system decided to sabotage their own cash cow? Why? How can you justify your view?

[rnp1thx]

Li was a plant from the Li clan (Tang Dynasty), who returned to Hong Kong after the Gaussian copula function did it's damage. It was a Trojan Horse-planted on purpose to destroy America and the chinese people who "invested" in US bonds. Very clever, but greed went wild. We may never recover. Bernanke (Benny Da Bankster) keeps buying Treasury bills with printed fiat money to cover till 2012-watch out!!!!

[ditke71]

Which is the advantage of gaussian copula vs normal distribution?

[Bhavan71]

@ditke71

AFAIK

Copulas do not make any assumptions about the form of marginal distributions. It only makes assumptions about the form of the relationships between the marginals. The Gaussian copula does not assume that the marginals have normal distributions.....otherwise there would be no difference between multivariate normal distribution and Gaussian copula.

Hope that was helpful and if anyone thinks I am wrong I am open to discussion.

[ditke71]

@Bhavan71

Yes, I know, but Gaussian Copula uses the correlation cofficient in its expression. The marginals could be any univariate continuous marginals. But the question is, if it has any sense to use the correlation coefficient if the joint probability distribution is not normal.

So in my opinion, this is why the Gaussian copulas did not work.

[wcub4]

Can give me software for multivariate copula function ( not bivariate ) or send me some codes for Java, c++ or whatever programming language.

[Geotubest]

David, always enjoy your videos. Very well explained. Just a note: Financial is spelled "finanical" at 7:11. You probably already know this, but in case you didn't, I just thought I'd mention.

[cod1008]

thanks alot. I've always wondered what gaussian copula is.

[geiko187]

Good to have you back David, you're my favorite subscription on youtube - slowly working my way through all the videos.

[smithma01]

Slowly getting my head round things... Your vids really help, Thank You !

[dave597]

thanks, very good explanation - i understood all of that.