• Dependence and Risk Management

    What makes dependence modeling so challenging?

    We present a list of challenges one faces when given the task of modeling the dependence between stochastic objects, especially with a focus on financial applications. Our intention is to draw the readers’ attention to common (and not so common) pitfalls and fallacies, and we particularly aim at readers that are new to dependence modeling. The presented list of challenges is clearly not complete, but our goal is to give the readers a flavor as to how difficult and how subtle dependence modeling can be. Moreover, the readers should get some intuition about what kind of challenges are structural and cannot be overcome, and what kind of challenges allow for a better solution than common practice might suggest.