Copula theory

Copula theory is a statistical framework used to understand and model the dependence between different random variables. It separates the way variables connect from their individual behaviors, allowing analysts to accurately capture complex relationships beyond simple correlations. By using copulas, we can analyze how variables move together under various conditions, improving risk assessment and decision-making in fields like finance, insurance, and engineering. Essentially, copula theory provides a flexible way to build models that reflect real-world dependencies more precisely than traditional methods.