In this paper we discuss some statistical pitfalls that may occur in modeling cross-dependences with copulas in … financial applications. In particular we focus on issues arising in the estimation and the empirical choice of copulas as well … as in the design of time-dependent copulas. …

regime-switching model of copulas. We model dependence with one Gaussian and onecanonical vine copula regime. Canonical vines … are constructed from bivariate conditional copulas andprovide a very flexible way of characterizing dependence in …

), CreditMetrics, KMV) still rely on Gaussian copulas. This paper complements the finance literature providing new insights into the … impact of different copulas in stress test applications using supervisory data of 17 large German banks. Our findings imply … high stress effects under extreme scenarios. Heavy-tailed copulas like the Clayton or the t copula are recommended in the …