Correlation
Big risk in Japan
RBS issued a one-year income product linked to five Japanese stocks in March 2008, paying 3% interest plus a variable capital repayment. Three of the stocks fell through their barriers, putting capital at risk and making for a capital return of only 39%
Crowd busting
The financial crisis revealed most dealers had near-identical exposures in exotic derivatives markets – whether in credit, interest rates, equity or inflation – leaving them unable to exit or hedge their positions when markets tanked. How have traders…
Correlation: Alternative realities
Correlation: Alternative realities
Factor models for credit correlation
Stewart Inglis, Alex Lipton and Artur Sepp present an extension of the static factor model for pricing credit correlation products introduced by Lipton (2006) and detailed in Inglis & Lipton (2007)
Hedging the hard way
Quanto options have stung dealers' equity derivatives books after the unexpected spikes in volatility and correlation that followed the Lehman Brothers collapse, while structured product issuers have been hit by plummeting dividend expectations and…
Stock responses
Exotics
Sunk by correlation
Equity Derivatives
Explaining the Levy base correlation smile
Joao Garcia and Serge Goossens look at base expected loss at maturity both in the Gaussian copula and Levy-based models, and link it to base correlation in these frameworks. They report on the existence of smile in both base correlation curves and…
Sunk by correlation
Equity derivatives dealers faced a grim picture across global markets earlier this year, with steep rises in correlation and volatility together with a slump in dividend expectations decimating exotic books. How have dealers responded? By Mark Pengelly
Room for skew
Skew
Equity correlation – explaining the investment opportunity
Sponsored Statement
Valid Assumptions Required: calculating correlations
Correlation measures are major drivers of value-at-risk. Brett Humphreys and Eric Raleigh review assumptions associated with calculating correlation.
Riding the waves – how to achieve low correlation in volatile equity markets
Sponsored Statement
Factor models for credit correlation
Stewart Inglis and Alex Lipton describe dynamic and static factor models for credit correlation, and show how the static model can be calibrated to the market and used for the pricing of standard and bespoke tranches, including tranchelets