Copulas, Multivariate Risk - Neutral Distributions and Implied Dependence Functions
15 Pages Posted: 26 Nov 2007
Date Written: September 5, 2001
In this paper, we use copulas to define multivariate risk - neutral distributions. We can then derive general pricing formulas for multi - asset options and best possible bounds with given volatility smiles. Finally, we then apply the copula framework to define 'forward-looking' indicators of the dependence function between asset returns.
Keywords: Copulas, risk-neutral distribution, change of numéraire, option pricing, implied multivariate RND
JEL Classification: G00
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