TITLE:
Extended Correlations in Finance
AUTHORS:
Mark Burgin, Gunter Meissner
KEYWORDS:
Extended Correlation, Pearson Correlation, Financial Process, n-Aspect Correlation Coefficient, n-Factor Correlation Coefficient, Complete Correlation Coefficient, Total Correlation Coefficient
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.6 No.1,
February
29,
2016
ABSTRACT: Extended correlations, i.e. correlations that can take values less than − 1and/or larger than 1, occur naturally in mathematical models of financial processes. Extended correlations also occur in financial practice, especially in dispersion trading, implying arbitrage opportunities. Based on theoretical and practical emergence of extended correlations, we derive a mathematical framework for extended correlations explaining interpretations and applications. We develop a broader mathematical approach, which can model conventional as well as extended correlations.