Copula Methods in Finance
John Wiley & Sons, Oct 22, 2004 - Business & Economics - 310 pages
Copula Methods in Finance is the first book to address the mathematics of copula functions illustrated with finance applications. It explains copulas by means of applications to major topics in derivative pricing and credit risk analysis. Examples include pricing of the main exotic derivatives (barrier, basket, rainbow options) as well as risk management issues. Particular focus is given to the pricing of asset-backed securities and basket credit derivative products and the evaluation of counterparty risk in derivative transactions.
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2 Bivariate Copula Functions
3 Market Comovements and Copula Families
4 Multivariate Copulas
5 Estimation and Calibration from Market Data
6 Simulation of Market Scenarios
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ABN Amro applications arbitrage Archimedean copulas assume barrier options bivariate digital Black–Scholes call option CALL s1 Chapter Clayton copula comonotonic compute consider contingent claim copula function corresponding counterparty risk credit default swap credit derivatives credit risk default probability default-free defined Deﬁnition DEM/USD denote dependence structure digital option discount factor equal estimated evaluation example Figure Frank copula Gaussian copula given hedging implied incomplete market interest rate joint distribution joint distribution function Kendall’s lemma level curves LgdA linear correlation log-normal distribution marginal distributions matrix multivariate n-dimensional no-arbitrage normal obligors obtained parameter pay-off portfolio pricing kernel probability distribution problem product copula put option Ran F1 random variables relationship represent respectively returns risk-neutral measure risk-neutral probability simulated Sklar’s theorem standard stochastic strategy subcopula survival copula survival function tail dependence tranche underlying asset univariate volatility zero