Please answer all parts. Thank you.

Question 5. (5 points) Measuring dependency is a critical challenge in risk management. Answer the following questions. 5.1. (1 point) Discuss why some of the drawbacks of linear correlations may make it an undesirable measure for dependency between risks. Please be specific and you may also consider adding some risk management contexts or using some examples. Please do NOT just copy over the drawbacks themselves from the slides. 5.2. (2 points) Provide a numerical example where linear correlations and rank correlations do not capture the same underlying dependence structure in the data. You may refer to the class example in Class 5 but cannot use the exact same example. 5.3. (2 points) Verbally describe how to use a Copula model to model risk dependencies. Comment on the inputs that you will need to build the Copula model and on the process you will use to generate results