The ART of dependence modelling: the latest advances in correlation analysis
Peter Blum, Alexandra Dias, Paul Embrechts · Leicester Research Archive (University of Leicester) · 2002
Both at the design stage as well as at the pricing stage of Alternative Risk Transfer (ART) products, the notion of low (zero) beta plays an important role. By now it is well known that for these non-standard products, the interpretation of dependence through linear correlation (and hence the portfolio-beta language) becomes dubious. We review some of the new tools (like copulas) to handle the measurement of dependence in ART products. An example will be discussed.