Correlated Wiener Processes

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This Demonstration displays the paths of two correlated Wiener processes.


The concept of correlated stochastic processes is extremely important, particularly in areas of finance such as portfolio theory, but it can be somewhat counterintuitive, since highly correlated processes with very different diffusion and drift coefficients can look very different. You can gain an intuitive understanding of this concept by varying each of the parameters independently and observing the changes in the shape of the correlated paths.


Contributed by: Andrzej Kozlowski (March 2011)
Open content licensed under CC BY-NC-SA



There are several ways to generate correlated processes. This Demonstration reveals the following simple fact: if ,) are a pair of uncorrelated standard normal random variables then are a pair of standard normal variables with correlation coefficient .

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