Lorenz-generated bivariate archimedean copulas

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Abstract

A novel generating mechanism for non-strict bivariate Archimedean copulas via the Lorenz curve of a non-negative random variable is proposed. Lorenz curves have been extensively studied in economics and statistics to characterize wealth inequality and tail risk. In this paper, these curves are seen as integral transforms generating increasing convex functions in the unit square. Many of the properties of these "Lorenz copulas", from tail dependence and stochastic ordering, to their Kendall distribution function and the size of the singular part, depend on simple features of the random variable associated to the generating Lorenz curve. For instance, by selecting random variables with a lower bound at zero it is possible to create copulas with asymptotic upper tail dependence.An"alchemy" of Lorenz curves that can be used as general framework to build multiparametric families of copulas is also discussed.

Original languageEnglish
Pages (from-to)186-209
Number of pages24
JournalDependence Modeling
Volume8
Issue number1
DOIs
Publication statusPublished - 2020

Keywords

  • Archimedean copulas
  • Gini index
  • Lorenz curves
  • Stochastic ordering
  • Tail dependence

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