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Modelling dependence in finance using copulas - Thierry Roncalli's ...

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The case of the spread option<br />

that the price P (t 0 ) is<br />

In [12], Valdo Durrleman shows<br />

P (t 0 ) = S 2 (t 0 ) − S 1 (t 0 ) − Ke −r(T −t 0) +<br />

e −r(T −t 0) ∫ K<br />

−∞ 0<br />

∫ +∞<br />

f 1 (x) · ∂ 1 C Q (F 1 (x) , F 2 (x + y)) dx dy<br />

A remark The copula construction implies that we can associate<br />

a risk-neutral copula to a multivariate risk-neutral distribution. But it<br />

does not mean that the comb<strong>in</strong>ation of univariate RND with a copula<br />

def<strong>in</strong>e necessarily a multivariate risk-neutral distribution (see [10] for<br />

further details).<br />

<strong>Modell<strong>in</strong>g</strong> <strong>dependence</strong> <strong>in</strong> f<strong>in</strong>ance us<strong>in</strong>g <strong>copulas</strong><br />

New pric<strong>in</strong>g methods with <strong>copulas</strong> 4-5

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