ZT
1 month 3 weeks ago
By construction, equation (5) can only model binomial events,
for example default and no default. Since the Pearson approach is unsatisfactory to model
financial correlations, quantitative analysts have developed specific
financial correlation measures. However, the limitations of Pearson correlation approach in finance
are evident. Third, a zero Pearson product-moment correlation coefficient does not necessarily mean independence, because
only the two first moments are considered.
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