Stochastic Volatility & Tail Correlation
Document ID: 2005-360 (previously 2005/001)
Published on: 1st November 2005
Author: Steven Morrison
In this presentation we describe different measures of dependency between financial variables, including copulas and tail dependency. We describe how the Barrie & Hibbert stochastic volatility model gives rise to a stochastic correlation effect between different equity markets and compare the resulting tail dependency with a simpler multivariate normal model.
