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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