P3.

Types of Copula
Welcome to the session “Types of Copula”! The topics we will demonstrate several important
types of copula by 3-D perspective plot.

 We first show how to draw a perspective plot of a Frank copula. Load library copula. Create
vectors u and v on (0,1) scale. Define a frank copula with parameter 4 and dimension 2.
 Define a function f that takes two vectors on (0,1) and return the cumulative distribution for
each uv-pair assuming frank copula as the underlying dependence. Then draw perspective
plot using function persp.
 Now consider a bivariate Gaussian copula. Create the copula using the function ellipCoplula
in which we assign 0.25 to the correlation coefficient and specify “unstructure” to the
argument “dispstr”. Then we draw the density perspective plot of the defined copula by
specifying dcopula in the persp function.
 We proceed to establish a bivairate Gaussian distribution using function mvdc. There are two
components required by mvdc function, a copula with pre-specified copula parameter, and
marginal distributions with given parameter values. In this example, we first specify the
copula to be the established Gaussian copula with correlation equaling 0.25, and then specify
both margins to be standard normal distribution with mean 0 and variance 1.
 Then we draw the density function of this bivariate Gaussian distribution using argument
dmvdc.The first letter “d” stands for density.
 Now we consider an independent copula with cdf given by the product of u and v. Besides
the perspective plot, we also draw the contour plot for the distribution function which is the
projection of perspective plot on the unit square.
 Another important elliptical copula is t copula. Consider 4 t-copula with a common
correlation coefficient 0.25 but with degree of freedom being 0.25, 1, 100, and 200
respectively. Although these copulas have different degree of freedoms, they have the same
sperman’s rho correlation coefficient which is a ranked-based measure. It shows that
changing degree of freedom has no impact in the relative ranks of the random pair. However,
spearman’ s rho is positively correlated to the pearson correlation coefficient.
 Perspective plots of the density function of the above four t copulas show that the joint tails
are affected by the value degree of freedom: the larger the value the heavier the joint tails.
 If you are interested in other copula types, please refer to the lecture note. Or you can
download the R manuals of library copula and fcopula which provide comprehensive lists of
commonly used copula classes.
 So much for this section! I will see you in session 4.