Copula Density Estimation by Total Variation Penalized Likelihood

A copula density is the joint probability density function (PDF) of a random vector with uniform marginals. An approach to bivariate copula density estimation is introduced that is based on a maximum penalized likelihood estimation (MPLE) with a total variation (TV) penalty term. The marginal unity and symmetry constraints for copula density are enforced by linear equality constraints. The TV-MPLE subject to linear equality constraints is solved by an augmented Lagrangian and operator-splitting algorithm. It offers an order of magnitude improvement in computational efficiency over another TV-MPLE method without constraints solved by log-barrier method for second order cone program. A data-driven selection of the regularization parameter is through K-fold cross-validation (CV). Simulation and real data application show the effectiveness of the proposed approach. The MATLAB code implementing the methodology is available online.