C[omp]ute

From: "andrew cooke" <andrew@...>

Date: Wed, 11 Feb 2009 18:09:31 -0300 (CLST)

http://www.cfapubs.org/doi/pdf/10.2469/faj.v65.n1.4

(PDF, quite simple).

Background:

http://optionarmageddon.ml-implode.com/2009/02/10/markowitz-on-asset-transparency/

http://ftalphaville.ft.com/blog/2009/02/11/52350/marking-to-markowitz

Good discussion at FT (and some random stuff, afaict).

"Gaussian copula derived correlation numbers" refers to how correlated
distributions are handled.  The first google hit for that term is apaper
that says in its abstract: "Gaussian copula is by far the most popular
copula used in the financial industry in default dependency
modeling. However, it has a major drawback — it does not exhibit tail
dependence,
a very important property for copula. The essence of tail dependence is
the interdependence when extreme events occur, say, defaults of corporate
bonds."

(Don't skip that last sentence above)

Andrew