Modelling correlation as a stochastic process
نویسنده
چکیده
Although market observations show that correlation between stocks, interest rates, e. g., is not deterministic, correlation is usually modelled as a fixed number. This article provides a new approach of modelling correlation as a stochastic process which has applications in many fields. We will show an example from financial markets where the stochasticity of correlation is a fundamental source of risk: the quanto.
منابع مشابه
Modelling and Decision-making on Deteriorating Production Systems using Stochastic Dynamic Programming Approach
This study aimed at presenting a method for formulating optimal production, repair and replacement policies. The system was based on the production rate of defective parts and machine repairs and then was set up to optimize maintenance activities and related costs. The machine is either repaired or replaced. The machine is changed completely in the replacement process, but the productio...
متن کاملModelling Tumor-induced Angiogenesis: Combination of Stochastic Sprout Spacing and Sprout Progression
Background: Angiogenesis initiated by cancerous cells is the process by which new blood vessels are formed to enhance oxygenation and growth of tumor. Objective: In this paper, we present a new multiscale mathematical model for the formation of a vascular network in tumor angiogenesis process. Methods: Our model couples an improved sprout spacing model as a stochastic mathematical model of spro...
متن کاملProposing A stochastic model for spread of corona virus dynamics in Nigeria
The emergence of corona virus (COVID-19) has create a great public concern as the outbreak is still ongoing and government are taking actions such as holiday extension, travel restriction, temporary closure of public work place, borders, schools, quarantine/isolation, social distancing and so on. To mitigate the spread, we proposed and analyzed a stochastic model for the continue spread of coro...
متن کاملModelling stochastic correlation
This work deals with the stochastic modelling of correlation in finance. It is well known that the correlation between financial products, financial institutions, e.g., plays an essential role in pricing and evaluation of financial derivatives. Using simply a constant or deterministic correlation may lead to correlation risk, since market observations give evidence that the correlation is hardl...
متن کاملAPPROXIMATION SOLUTION OF TWO-DIMENSIONAL LINEAR STOCHASTIC FREDHOLM INTEGRAL EQUATION BY APPLYING THE HAAR WAVELET
In this paper, we introduce an efficient method based on Haar wavelet to approximate a solutionfor the two-dimensional linear stochastic Fredholm integral equation. We also give an example to demonstrate the accuracy of the method.
متن کامل