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Dynamic Modeling of Dependence in Finance via Copulae Between Stochastic Processes

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Copula Theory and Its Applications

Part of the book series: Lecture Notes in Statistics ((LNSP,volume 198))

Abstract

Modeling of stochastic dependence is crucial to pricing and hedging of basket derivatives, as well as to pricing and hedging of some other financial products, such as rating-triggered corporate step-up bonds. The classical approach to modeling of dependence in finance via static copulae (and Sklar’s theorem) is inadequate for consistent valuation and hedging in time. In this survey we present recent developments in the area of modeling of dependence between stochastic processes with given marginal laws. Some of these results have already been successfully applied in finance in connection with the portfolio credit risk.

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Author information

Authors and Affiliations

  1. Department of Applied Mathematics, Illinois Institute of Technology, Chicago, IL, USA

    Tomasz R. Bielecki

  2. Institute of Mathematics, University of Warsaw, Warszawa, Poland

    Jacek Jakubowski

  3. Faculty of Mathematics and Information Science, Warsaw University of Technology, Warszawa, Poland

    Jacek Jakubowski & Mariusz Niewęgłowski

Authors
  1. Tomasz R. Bielecki
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  2. Jacek Jakubowski
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  3. Mariusz Niewęgłowski
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Corresponding author

Correspondence to Tomasz R. Bielecki .

Editor information

Editors and Affiliations

  1. , Faculty of Mathematics Informatics, University of Warsaw, ul. Banacha 2, Warszawa, 02097, Poland

    Piotr Jaworski

  2. , Department of Knowledge-Based, Johannes Kepler Universität, Altenberger Straße 69, Linz, 4040, Austria

    Fabrizio Durante

  3. Ladislaus von Bortkiewicz Chair of Stati, C.A.S.E. Centre for Applied Statistics a, Humboldt-Universität zu Berlin, Unter den Linden 6, Berlin, 10099, Germany

    Wolfgang Karl Härdle

  4. , Mathematical Institute, Polish Academy of Sciences, ul. Chopina 12, Toruń, 87100, Poland

    Tomasz Rychlik

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Bielecki, T.R., Jakubowski, J., Niewęgłowski, M. (2010). Dynamic Modeling of Dependence in Finance via Copulae Between Stochastic Processes. In: Jaworski, P., Durante, F., Härdle, W., Rychlik, T. (eds) Copula Theory and Its Applications. Lecture Notes in Statistics(), vol 198. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-12465-5_2

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