Copula

Dictionary Says

Definition of 'Copula'

A statistical measure that represents a multivariate uniform distribution, which examines the association or dependence between many variables. Although the statistical calculation of a copula was invented in 1957, it was not applied to financial markets and finance until the late '90s.  
Investopedia Says

Investopedia explains 'Copula'

Copulas are a mathematical tool used in finance to help identify economic capital adequacy, market risk, credit risk and operational risk. Interdependence of returns of two or more assets is usually calculated using the correlation coefficient. However, correlation only works well with normal distributions, while distributions in financial markets are mostly skewed. The copula, therefore, has been applied to areas of finance such as option pricing and portfolio value-at-risk to deal with the skewness.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Correlation

    In the world of ...
  2. Correlation Coefficient

    A measure that ...
  3. Covariance

    A measure of the ...
  4. Skewness

    Describe ...
  5. Kurtosis

    A statistical ...
  6. Binomial Option Pricing Model

    An options ...
  7. Credit Risk

    The risk of loss ...
  8. Default Risk

    The event in ...
  9. Value At Risk - VaR

    A statistical ...
  10. Boom

    A period of time ...

Articles Of Interest

  1. Modern Portfolio Theory: Why It's Still Hip

    See why investors today still follow this old set of principles that reduce risk and increase returns through diversification.
  2. The Dangers Of Over-Diversifying Your Portfolio

    If you diversify too much, you might not lose much, but you won't gain much either.
  3. Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  4. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  5. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  6. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  7. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  8. Invest Like A Pro

    By following the strategies of the pros, even a beginner can learn to invest like an expert.
  9. 5 Nobel Prize-Winning Economic Theories You Should Know About

    Here are 5 prize-winning economic theories that you’ll want to be familiar with.
  10. Okun's Law: Economic Growth And Unemployment

    Learn about Okun's Law, why it is important and how it stood the test of time since first being published.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center