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Extended Correlations in Finance
UCLA Department of Mathematics, Los Angeles, CA, USA
Derivatives Software, www.dersoft.com
Cassandra Capital Management, www.cassandracm.com
MathFinance at NYU-Courant, New York, USA
- 1 UCLA Department of Mathematics, Los Angeles, CA, USA
- 2 Derivatives Software, www.dersoft.com
- 3 Cassandra Capital Management, www.cassandracm.com
- 4 MathFinance at NYU-Courant, New York, USA
Journal of Mathematical Finance·Volume 06 (2016)·Pages 178–188·Published 5 February 2016·DOI10.4236/jmf.2016.61017
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Abstract
Extended correlations, i . e . correlations that can take values less than − 1 and/or larger than 1, occur naturally in mathematical models of financial processes. Extended correlations also occur in financial practice, especially in dispersion trading, implying arbitrage opportunities. Based on theoretical and practical emergence of extended correlations, we derive a mathematical framework for extended correlations explaining interpretations and applications. We develop a broader mathematical approach, which can model conventional as well as extended correlations.
KeywordsExtended CorrelationPearson CorrelationFinancial Process<i>n</i>-Aspect Correlation Coefficient<i>n</i>-Factor Correlation CoefficientComplete Correlation CoefficientTotal Correlation Coefficient
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