Wilmott said"stochastic correlation model" in multi-asset options

clement14 · May 21st, 2004, 5:45 pm

We can use stochastic correlation model in multi-asset options, but this approach has its own "problems". I don't know what problem? I think the problems are model risk, mean-reverting speed problem or every asset has its pattern(characteristics), if we combine them will cause many kinds of model. or Could anyone tell me what problem? thank you!

exotiq · May 21st, 2004, 7:29 pm

From what I understand, the model risk or parameter estimation risk is huge. The error in estimating correlation can often be on the order of magnitude of the correlation estimate itself.The credit guys seem to have the lead on this, and I am trying to learn what they know about correlation...

J · May 21st, 2004, 9:08 pm

QuoteOriginally posted by: clement14We can use stochastic correlation model in multi-asset options, but this approach has its own "problems". I don't know what problem? I think the problems are model risk, mean-reverting speed problem or every asset has its pattern(characteristics), if we combine them will cause many kinds of model. or Could anyone tell me what problem? thank you!clement14,Interesting question! I have thought about stochastic correlation model. Would you please tell me which paper Dr. Wilmott wrote for this paper?

clement14 · May 22nd, 2004, 2:56 am

hi, JJust in his book, derivertives(1998) Ch.11.