Copula-based trading strategies offer an innovative approach to statistical arbitrage by modeling dependencies between assets using copula functions. Traditional pairs trading largely relies on temporary divergences from expected relationships, while copulae model non-linear and asymmetric dependencies. The series explores copula-based tools' implementation, starting with fundamentals in pairs trading and dependency modeling.

Key concepts involve understanding the Probability Density Function, Cumulative Distribution Function, and marginal versus joint distributions. The Probability Integral Transform (PIT) and the empirical distribution's role in copula modeling are crucial. Copulae separate dependencies from marginals, aiding in complex analyses like extreme event comovements and tail dependencies in financial data.

Among different copula types, el...

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