Copula Methods in Finance (The Wiley Finance Series)
Umberto Cherubini,Elisa Luciano,Walter Vecchiato | 2004-07-23 00:00:00 | Wiley | 310 | Finance
This book takes copulas and applies the methodology to mathematical finance. The authors explain copulas by describing their application to major topics such as asset pricing, risk management and credit risk analysis. They take financial problems such as the pricing of multivariate derivatives and exotic contracts and risk management issues such as allocating capital among different desk and business lines. The intention is that the reader will be able to devise their own applications and answers to such problems by following the strategies illustrated throughout the book.
Reviews
This book is difficult to follow, although the examples helps to clarify some of the concepts. While it might be a good reference, it is not a good introductory book for someone who didn't have any prior knowledge on copulas.
Reviews
This book promises to be a very good comprehensive introduction to copula theory and addresses many practical aspects of copula. There are useful sections on bivariate (2-dimensional) and mulit-variate copulas including elliptical (Normal, Student t) and archimedian copula. There is a fair section on fitting copula parameters to data and a good section on Monte Carlo simulation of fitted copula.
However, there are numerous errors that I've come across, which make learning from this book very difficult or impossible. In fact, every section I've looked at in detail has mistakes, not typos, in the equations. (I just dropped my rating to 2 stars because of this!) The multivariate Frechet minimum boundary is written incorrectly in multiple locations. Whereas an example demonstrates that this bound is not a true copula, the following theorem says that it is a copula. The reference for the theorem, Sklar (1999), actually reads "Personal communication" in the bibliography! This reference is only slightly better than "From a dream..."
Unfortunate notation confuses the reader by repeating the copula density notation for the "conditional distribution" in the simulation section. This section is also riddled with mistakes and unexplained notation. Thankfully, enough examples exist that some use can be make of portions of the text by the practitioner.
Reviews
This is the kind of book I wished to have when I started to study copula functions in finance. The book does not bring big innovations in the subject, but has an exception value in its attempt to collect and make accessible lot of material on copulae. Equity and Credit Risk are the primary fields of application. After introducing bivariate families of copulae and different measures of association, it extends the analysis to the multidimensional case. Then two very nice chapters deal with the problem of 1) calibrating copulae 2) sampling from various copulae. Finally, applications to credit risk (CDOs) and equity options are presented. Overall, I think it is a very valuable book for all the people looking to have one unique source to understand and apply copula functions in finance.
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