Multivariate tail dependence and local stochastic dominance

Abstract

Given two multivariate copulas with corresponding tail dependence functions, we investigate the relation between a natural tail dependence ordering and the order of local stochastic dominance. We show that, although the two orderings are not equivalent in general, they coincide for various important classes of copulas, among them all multivariate Archimedean and bivariate lower extreme value copulas. We illustrate the relevance of our results by an implication to risk management.