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Correlation: Pitfalls and Alternatives
Year Of Publication: 1999
Month Of Publication: March
Pages: 8
Download Count: 3076
View Count: 10716
Comment Num: 0
Language: EN
Source: working paper
Who Can Read: Free
Date: 8-31-2002
Publisher: Administrator
Summary
This article will tell you when it is safe and unproblematic to use correlation in the way that you imagine you can use it, and when you should take care. In particular it will tell you about two fallacies that have claimed many victims. These traps are known to statisticians, but not, we suggest, to the general correlation-using public. We will help you avoid these pitfalls and introduce an alternative approach to understandingand modelling dependency - copulas. The recognition that correlation is often an satisfactory measure of dependence in financial risk management and is not in itself new.
Author(s)
Embrechts, Paul Sign in to follow this author
McNeil, Alexander Sign in to follow this author
Straumann, Daniel Sign in to follow this author
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