Generalized Measures of Correlation and their Implications in GARCH and Heston Models

Abstract

[evdate 2013-12-19] HKUST International Forum on Probability and Statistics. Talk no. 18. Title from opening screen.

The Second HKUST International Forum on Probability and Statistics (2013), held 19 December, 2013, at the Hong Kong University of Science and Technology. Co-sponsored by the HKUST Jockey Club Institute for Advanced Study and the Center for Statistical Science.

'Co-authors; Shurong Zheng, Ning-Zhong Shi, Qiurong Cui.'

Abstract: The speaker presents examples under which the paired measures are identical, and they become a symmetric correlation measure which is the same as the squared Pearson's correlation coefficient. As a result, Pearson's correlation is a special case of GMC. Theoretical properties of GMC show that GMC can be applicable in numerous applications and can lead to more meaningful conclusions and decision making. In statistical inferences, the joint asymptotics of the kernel based estimators for GMC are derived and are used to test whether or not two random variables are symmetric in explaining variances. The testing results give important guidance in practical model selection problems. In real data analysis, this talk presents ideas of using GMCs as an indicator of suitability of asset pricing models, and hence new pricing models may be motivated from this indicator.

Duration: 41 min.