Selection of appropriate copula family for multivariate Monte Carlo simulation of asset returns
Hi R Sig Finance mailing list,
I am currently trying to perform a multivariate Monte Carlo simulation of asset class returns. I found that using copulas can overcome the non-normality of asset class returns as well as better simulate dependence between returns.
In terms of selecting and applying copulas via R, I found the following R packages VineCopula and copula. The BiCopSelect function in VineCopula package is able to recommend the appropriate copula family based on bivariate data. However, I cannot seem to find any function in the packages that is able to recommend the appropriate copula family based on multivariate data (e.g. modelling 3 or more asset classes).
Is anyone able to suggest how I can identify the appropriate copula family using an R function? Would you be able to show me a sample code, based on say historical returns of 3 equity securities.
Thanks in advance
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