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M5L12

Introduction to Copulas-2

1. Introduction
This is the second lecture on copula function. We have discussed on the definition of copula
function with explanation, its properties, basic terminologies, Sklar theorem etc. in the
previous lecture. Here a particular class of copulas, Archimedean copula, which is
extensively used in recent hydrological and other civil engineering studies, is discussed.
2. Archimedean Copula
2.1. Definition
A copula that can be expressed in terms of ( )
( )
( ) ( ) ( ) v u v u C + =
1
, is known as
Archimedean copula, where is a strictly decreasing, continuous function and
( ) 1
is the
pseudo inverse of it.
The is known as the generator of Copula and defined as,
( )
( ) ( )
( )

s s
s s
=

t
t t
t
0 , 0
0 0 ,
1
] 1 [



2.2. Expression of copula in terms of generator function
Let ( ) ( )
u
u
t t = 1 for < s u 1 where ( ) 1 0 =
u
. Then a generator of Archimedean copula
can be expressed as, ( )
( )

s s
s s
=

t
t t
t
1 , 0
1 0 , 1
] 1 [
u

and the Archimedean copula can be expressed in terms of as,


( ) ( )
( )
| | ( )
u
u u
u u

+ =
+ =
+ =
) 1 ( ) 1 ( 1
) 1 ( ) 1 (
) ( ) ( ,
] 1 [
] 1 [
v u
v u
v u v u C

Here u is the dependence parameter between two random variables.



2.3. Reasons for Popularity


There are several advantages of Archimedean copulas over other classes made this popular
among researchers in the field of Civil Engineering, especially in Stochastic Hydrology,
Hydrometeorology, and Structural Reliability etc. Among various reasons of popularity, a
few are listed below.
i. This class of copula can be easily constructed using generator function
ii. There are many varieties are available to be applicable for a range of dependence
parameter
iii. The different varieties of Archimedean copulas have nice and useful properties, such
as, having an explicit expression based on generator, catering a high dimension using
single parameter derived from measure of dependence etc.

2.4. Example Plots
Clayton copula is expressed as
( ) ( ) | |
u
u u
1
0 , 1 max ,


+ = v u v u C for
| ) { } 0 \ , 1 e u
(1)
where the generator function is defined as ( ) 1
1
=
u
u
u
t . Here a couple of scatter plots
(figures 1a and b) are presented for two selected values as u =0.5 and u =5.0.


Fig. 1a. Scatter plot between u and v for u =0.5 (left) and for u =5.0 (right)

2.5. Relation between Kendalls Tau and Copula Generator


In case on Archimedean copulas, a relation can be established between Kendalls t and the
generator function as,
( )
( )
du
u
u
}
'
+ =
1
0
4 1

t .
This relationship is useful for obtain joint distribution from sample measure of dependence in
terms of estimate of Kendalls t . The sample estimate of Kendalls t can be determined by
its definition as, ( )( ) | | ( )( ) | |
2 2 2
0 0
C
N N
C
N
C
N
y y x x P y y x x P
n
d c
n
d
n
c
j i j i j i j i

= = < > = t
where
c
N is the number of concordant pairs,
d
N is number of discordant pairs, n is size of
the sample and ( ) 1
2
1
2
= n n C
n
.
A list of few Archimedean copulas are shown in Table 1 with their expressions and other
relevant informations.


Table 1: Few Archimedean copulas


where ( )
( )
}

=
u
u
0
1
1 exp
1
dt
t
t
x
D for 0 > u and ( ) ( )
2
1 1
u
u u + = D D
Copula
Type
Copula Function, ( ) v u C ,
u

Generator
Function,
( ) t
u


e u Kendall (in terms of u )
Clayton
( ) | |
u
u u
1
0 , 1 max

+

v u

( ) 1
1

u
u
t

| ) { } 0 \ , 1
2 + u
u

Frank
( )( )
|
|
.
|

\
|


+


1
1 1
1 ln
1
u
u u
u e
e e
v u

|
|
.
|

\
|

1
1
ln
u
u
e
e
t

( ) { } 0 \ , ( ) | | 1
4
1
1
u
u
D
Ali-
Mikhail-
Haq
( )( ) v u
uv
1 1 1 u

( )
t
t 1 1
ln
u

[1, -1) ( ) u
u u
u
|
.
|

\
|
|
.
|

\
|
1 ln
1
1
3
2 2 3
2

Gumbel-
Hougaard
( ) ( ) | | ( )
u
u u
/ 1
ln ln exp v u +
( )
u
t ln | ) , 1
u
u 1


3. Concluding Remarks
In this lecture, class of Archimedean copulas is discussed. It is the most popular in
hydrological and other civil engineering studies because of its explicit expression,
applicability in wide range of scale-free measure of dependence. The properties of four most
useful Archimedean copulas are presented. This is the last lecture of this module.