rkadambi


Total Posts: 1 
Joined: May 2019 


Hi,
This my first post on this platform. Forgive me if these are not appropriate questions. I am reading the paper titled "A new Approach For Modelling and Pricing Correlation Swaps". I am having trouble proving a few claims made in the paper.
1. On page 3 he claims that $\overline{\sigma}^S(\tau) \ge \sigma^I(\tau)$. All my attempts to prove this have failed. I would appreciate if some one can point me in the right direction.
2. On the same page the note (5) for d(\tau)^2 seems wrong and is not the same as (115). Could some one shed some color on the matter.
I much appreciate the help.
Regards, Ramesh
The link to the paper:
http://quantlabs.net/academy/download/free_quant_instituitional_books_/[Dresdner%20Kleinwort]%20A%20New%20Approach%20For%20Modeling%20and%20Pricing%20Correlation%20Swaps.pdf 



ronin


Total Posts: 457 
Joined: May 2006 


1 is just the standard diversification argument. Take the log of I, square it and take the expectation. Pay attention to the expectation of the cross terms  how big and how small can it get.
2 is the same thing in both expressions. Just make sure you have all the logs and squares correct. It's a bit unfortunate that he uses the letter d for both the differential and for the dispersion function, but there are brackets to tell you which is which.

"There is a SIX am?"  Arthur 
