Enterprise Risk Management Slides

Correlation, co-dependency and risk aggregation [31]

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Bullet points include: Gaussian copula. Here, cdf of a standard multivariate normal distribution function is Nm(mu,rho) where mu = 0 and rho (i.e. rho i,j) is a correlation matrix (so e.g. rho i,i = 1 and -1 <= rhoi,j <= 1). Special case where rho i,j = 0 if i <> j is Independence or Product Copula: If rho i,j = rho for all i <> j then Gaussian copula is exchangeable. c.f. CDO pricing etc.

Bullet points include: Gaussian copula. Here, cdf of a standard multivariate normal distribution function is Nm(mu,rho) where mu = 0 and rho (i.e. rho i,j) is a correlation matrix (so e.g. rho i,i = 1 and -1 <= rhoi,j <= 1). Special case where rho i,j = 0 if i <> j is Independence or Product Copula: If rho i,j = rho for all i <> j then Gaussian copula is exchangeable. c.f. CDO pricing etc.

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