On the control of the difference between two Brownian motions: a dynamic copula approach

DOI10.1515/DEMO-2016-0007MaRDI QIDQ324995zbMATH OpenOpenAlexFDO

Authors Thomas Deschatre

Publication date 17 October 2016

Published in Dependence Modeling (Search for Journal in Brave)

Copyright license Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported

Full work available at URL https://arxiv.org/abs/1601.04546

zbMATH Keywords

asymmetrycopulaBrownian motionriskcouplingMarkovian diffusions

Mathematics Subject Classification ID

Multivariate analysis (62H99) Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Diffusion processes (60J60) Brownian motion (60J65) Continuous-time Markov processes on general state spaces (60J25) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

Abstract: We propose new copulae to model the dependence between two Brownian motions and to control the distribution of their difference. Our approach is based on the copula between the Brownian motion and its reflection. We show that the class of admissible copulae for the Brownian motions are not limited to the class of Gaussian copulae and that it also contains asymmetric copulae. These copulae allow for the survival function of the difference between two Brownian motions to have higher value in the right tail than in the Gaussian copula case. Considering two Brownian motions $B_t^1$ and $B_t^2$, the main result is that the range of possible values for $mathbbPleft(B_t^1-B_t^{2}geqetaight)$ with $eta>0$ is the same for Markovian pairs and all pairs of Brownian motions, that is $left[0,2Phileft(frac-eta2sqrttight)ight]$ with $Phi$ being the cumulative distribution function of a standard Gaussian random variable.

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Cited in

(2)

• Copulæ of processes related to the Brownian motion: a brief survey
• On the control of the difference between two Brownian motions: an application to energy markets modeling

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