Perturbed Gaussian copula: introducing the skew effect in co-dependence
Gaussian copula models are often used in the industry when single-asset information is quoted but little is known about their joint relation. These models may arise from correlated stochastic Brownian processes with deterministic volatility and correlation. If stochastic volatility is introduced, skewness and fat tails can be included in the co-dependence but analytic tractability is lost. Alberto Elices and Jean-Pierre Fouque show how this analytic tractability is preserved through another copula derived from an asymptotic expansion of the correlated processes with stochastic volatility around the Gaussian copula case
Copula models arise in the market when quoted information about the behaviour of single assets is available but very little is known about their joint relations. Information about the joint distribution of assets is captured in the prices of basket products written on them. However, as a lot of information is embedded in a single price, some assumptions have to be made about the form of the distribution in order to extract it.
Perturbed Gaussian copula: introducing the skew effect in co
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Markets
Hedge funds flock to US swap spreads on SLR easing talk
‘Trade of the year’ sees investors position for shrinking negative basis as Treasuries predicted to outperform swaps
China programme trading rules to buoy futures market
Futures firms could adjust strategies to avoid HFT classification under new framework
Positive M&A outlook could boost deal contingent hedges
Traders predict hedging activity linked to deal completions will take off this year
QIS 3.0 ‘bonanza’: hedge funds pivot from options to swaps
Pod-level scramble for max-loss exposure gives way to central risk books seeking overlays
Shaking things up: geopolitics and the euro credit risk measure
Gravitational model offers novel way of assessing national and regional risks in new world order
Eurex squashes butterflies with Stir incentives
Rebate caps on low-risk strategies flatten mid-curve bulge in €STR contracts
The relativity of the fractional Gamma Clock
Bank of America quant expands his Gamma Clock model with a fractional Brownian motion
Volatility selling is down, but not out
Shrinking risk premiums could end cycle of vol suppression, traders say – but not just yet
