Correlations in Asynchronous Markets

10 Pages Posted: 9 Jul 2010

Date Written: January 2010

Abstract

We address the issue of pricing multi-asset options in the context of asynchronous markets. Using the criterion that the carry P&L vanish we derive the expression of the correlation estimator for the asynchronous case. We study its historical behaviour for the case of the Stoxx50, S&P500, and Nikkei indices, then consider the special case of correlation swaps and compare our correlation to popular heuristic estimators. Finally we characterize practical situations whereby correlations larger than 1 are materialized as a P&L.

JEL Classification: G13

Suggested Citation

Bergomi, Lorenzo, Correlations in Asynchronous Markets (January 2010). Available at SSRN: https://ssrn.com/abstract=1635866 or http://dx.doi.org/10.2139/ssrn.1635866

Lorenzo Bergomi (Contact Author)

Societe Generale ( email )

Paris-La Défense, Paris 92987
France

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