Fitting discrete multivariate distributions with unbounded marginals and normal-copula dependence
Athanassios N. Avramidis · ePrints Soton (University of Southampton) · 2009
In specifying a multivariate discrete distribution via the NORmal To Anything (NORTA) method, a problem of interest is: given two discrete unbounded marginals and a target value r, find the correlation of the bivariate Gaussian copula that induces rank correlation r between these marginals. By solving the analogous problem with the marginals replaced by finite-support (truncated) counterparts, an approximate solution can be obtained. Our main contribution is an upper bound on the absolute error, where error is defined as the difference between r and the resulting rank correlation between the original unbounded marginals. Furthermore, we propose a simple method for truncating the support while controlling the error via the bound, which is a sum of scaled squared tail probabilities. Examples where both marginals are discrete Pareto demonstrate considerable work savings against an alternative simple-minded truncation.