
arXiv: 1510.04161
Quantile regression, that is the prediction of conditional quantiles, has steadily gained importance in statistical modeling and financial applications. The authors introduce a new semiparametric quantile regression method based on sequentially fitting a likelihood optimal D-vine copula to given data resulting in highly flexible models with easily extractable conditional quantiles. As a subclass of regular vine copulas, D-vines enable the modeling of multivariate copulas in terms of bivariate building blocks, a so-called pair-copula construction (PCC). The proposed algorithm works fast and accurate even in high dimensions and incorporates an automatic variable selection by maximizing the conditional log-likelihood. Further, typical issues of quantile regression such as quantile crossing or transformations, interactions and collinearity of variables are automatically taken care of. In a simulation study the improved accuracy and saved computational time of the approach in comparison with established quantile regression methods is highlighted. An extensive financial application to international credit default swap (CDS) data including stress testing and Value-at-Risk (VaR) prediction demonstrates the usefulness of the proposed method.
Applications of statistics to actuarial sciences and financial mathematics, FOS: Computer and information sciences, quantile regression, conditional copula quantile, stress testing, Methodology (stat.ME), conditional distribution, vine copula, Nonparametric regression and quantile regression, Computational methods for problems pertaining to statistics, Characterization and structure theory for multivariate probability distributions; copulas, Statistics - Methodology
Applications of statistics to actuarial sciences and financial mathematics, FOS: Computer and information sciences, quantile regression, conditional copula quantile, stress testing, Methodology (stat.ME), conditional distribution, vine copula, Nonparametric regression and quantile regression, Computational methods for problems pertaining to statistics, Characterization and structure theory for multivariate probability distributions; copulas, Statistics - Methodology
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