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goshawk · January 17th, 2004, 3:27 pm

Assuming constant correlation and volatility there're pricingmodels like Margrabe. However, can anyone pinpoint me to articles etc. assuming even these factors are stochastic (or in a certain level at specified prob.) ? How relevant do you consider i.e stochastic correlation to me in this case?

daveangel · January 17th, 2004, 5:27 pm

I think that there are so many uncertain variables in the problem that adding another is not going to add any more value ...

goshawk · January 19th, 2004, 9:29 pm

Thank you quadrature, but do you have any useful comments also??You mean Oztukel and others are just doing unrealistic tecnobabbeling..., or what?

daveangel · January 20th, 2004, 6:17 pm

I thought my comment was quite useful .. I am a big believer in Keeping it simple. Where are u going to observe the correlation skew ? Can u isolate from other biases in the market ?

goshawk · January 20th, 2004, 8:07 pm

Skewed vol is something observable, because people doesnt belive in the simple assumptions of b&s, right? What says correlation should be affected by the same flaws/skew? I guess the only thing one knows is the historical correlation, by some assumtions, and thats even more stochastic behaviour than voll ?