My kingdom for the right copula
Copulas can still deliver if chosen with due attention to intuition and data, says quant fund chair
Non-linear correlations pervade financial markets, yet an accurate representation of these dependencies remains out of reach for many in the industry and academia. The reason is excessive reliance on elegant mathematics at the expense of intuition and data. But copulas, the standard mathematical tool for dealing with non-linear correlations, can still deliver if selected with care.
Contrary to what Gaussian statistics would have us believe, non-linear correlations between financial assets are
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