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Copula Based Monte Carlo Integration in Financial Problems

  • Sancetta, A.

A computational technique that transform integrals over RK, or some of its subsets, into the hypercube [0, 1]K can be exploited in order to solve integrals via Monte Carlo integration without the need to simulate from the original distribution; all that is needed is to simulate iid uniform [0, 1] pseudo random variables. In particular the technique arises from the copula representation of multivariate distributions and the use of the marginal quantile function of the data. The procedure is further simplified if the quantile function has closed form. Several financial applications are considered in order to highlight the scope of this numerical technique for financial problems

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0506.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0506.

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Length: 34
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:cam:camdae:0506
Note: EM
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  10. David E. Bell, 1988. "One-Switch Utility Functions and a Measure of Risk," Management Science, INFORMS, vol. 34(12), pages 1416-1424, December.
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  12. Jens Carsten Jackwerth, 1998. "Recovering Risk Aversion from Option Prices and Realized Returns," Finance 9803002, EconWPA.
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