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ERM Glossary: Coefficient of tail dependence

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The coefficient of tail dependence is a measure of the limiting ‘correlation’ between outcomes in the (far) tails of (two) distributions.

 

‘Correlations’ between tails of distributions often differ from correlations applicable to the generality of the distributions and are thus potentially poorly estimated using standard correlation coefficients (calculated as per e.g. MnCorrelation, see e.g. the attached slides).

 

Coefficient of tail dependence can be thought of as a limiting version of tail correlation.

 


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