Bernoulli and tail-dependence compatibility

Abstract

The tail-dependence compatibility problem is introduced. It raises the question whether a given d × d-matrix of entries in the unit interval is the matrix of pairwise tail-dependence coefficients of a d-dimensional random vector. The problem is studied together with Bernoulli-compatible matrices, that is, matrices which are expectations of outer products of random vectors with Bernoulli margins. We show that a square matrix with diagonal entries being 1 is a tail-dependence matrix if and only if it is a Bernoulli-compatible matrix multiplied by a constant. We introduce new copula models to construct tail-dependence matrices, including commonly used matrices in statistics.