medium · Quantitative Finance

In the context of dependence modeling, why might a Gaussian copula understate the risk of a simultaneous market crash compared to a t-copula?

1. The Gaussian copula assumes that all correlations are positive.
2. The Gaussian copula has zero tail dependence, meaning extreme events decouple at the limit.
3. The t-copula is only used for interest rate derivatives.
4. The Gaussian copula cannot model assets with different marginal distributions.

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