Correlation between Brownian motions

NY153 · October 28th, 2004, 9:19 am

I have a question related to the correlation between Brownian motions.Considering two Brownian motions dW_1 and dW_2; I know the correlation <dW_1, dW_2> and the volatilities of dW_1 and dW_2.On the other hand, dW_2 is the sum of two others Brownian motions dW_21 and dW_22 for which I know the correlation <dW_21, dW_22> and the volatilities of dW_21 and dW_22.How can I compute the correlations <dW_1, dW_21> and <dW_1, dW_22> ?Thank you very much for your help.

BahamianMan · October 31st, 2004, 12:24 pm

not many people around.cheers .

luebke · November 3rd, 2004, 5:02 pm

You can't. You still have one degree of freedom, there is more than one solution. It is, however, very easy to calulate the whole set of possible solutions.