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Published in:
2011 | OriginalPaper | Chapter
High Frequency Correlation Modelling
Authors : Nicolas Huth, Frédéric Abergel
Published in: Econophysics of Order-driven Markets
Publisher: Springer Milan
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Many statistical arbitrage strategies, such as pair trading or basket trading, are based on several assets. Optimal execution routines should also take into account correlation between stocks when proceeding clients orders. However, not so much effort has been devoted to correlation modelling and only few empirical results are known about high frequency correlation. Depending on the time scale under consideration, a plausible candidate for modelling correlation should:
at high frequency: reproduce the Epps effect [
1
], take into account lead-lag relationships between assets [
2
]
at the daily scale: avoid purely Gaussian correlations [
3
].