11.7         Suppose that in Problem 10.15 the correlation between the S&P 500 index (measured in dollars) and the FTSE 100 index (measured in sterling) is 0.7, the correlation between the S&P 500 index (measured in dollars) and the dollar-sterling exchange rate is 0.3, and the daily volatility of the S&P 500 Index is 1.6%. What is the correlation between the S&P 500 index (measured in dollars) and the FTSE 100 index when it is translated to dollars? ( For three variables X, Y, and Z, the covariance between X + Y and Z equals the covariance between X Y and plus the covariance between Y and Z.)

11.8             Suppose that two variables and have uniform distributions where all values between 0

 

and 1 are equally likely. Use a Gaussian copula to define the correlation structure between and with a copula correlation of 0.3. Produce a table similar to Table  considering values of 0.25, 0.50,  and  0.75  for   and  .  A  spreadsheet  for  calculating  the  cumulative  bivariate   normal distribution is on the author’s website: www.rotman.utoronto.ca/~hull.

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