Estimating Copula and Test of Independence based on a generalized framework of all rank-based Statistics in Bivariate Sample (1309.7503v1)

Abstract: Copulas are mathematical objects that fully capture the dependence structure among random variables and hence, offer a great flexibility in building multivariate stochastic models. In statistics, a copula is used as a general way of formulating a multivariate distribution in such a way that various general types of dependence can be represented. In case of bivariate sample, the notion of estimating copula is closely related to that of testing independence in a bivariate sample, as when the components of the bivariate sample are independent the copula becomes simply product of two uniform distributions. So apart from non-parametric estimation of copulas we also considered it relevant to introduce some non-parametric tests to better understand the very essence of copula in the explanation of association between the components. In fact we will develop a general multivariate statistics that gives rise to a much larger class of non-parametric rank based statistics. This class of statistics can be used in estimation and testing for the association present in the bivariate sample. We choose some representative statistics from that class and compared their power in testing independence using simulation as an attempt to choose the best candidate in that class.