Correlation
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
Structured Products House of the Year - BNP Paribas
Risk Awards 2008
Derivatives Research House of the Year - Citi
Risk Awards 2008
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
Inflation-indexed securities - Inflation with a smile
In the current inflation-indexed markets, most traded options have zero or even negative strikes. This highlights the need for a smile-consistent valuation of caps and floors on inflation rates. To this end, Fabio Mercurio and Nicola Moreni propose a…
A difference of opinion
CMS spread options have been just about everywhere this year, with investors keen to take a view on the shape of the yield curve. But a wide variation in pricing has sparked speculation that some banks may not be modelling these products accurately. By…
Understanding variations in the risk of multi-strategy portfolios
Investors spend a great deal of time and effort setting a thoughtful risk budget for their portfolio,only to see all too frequently that the targeted risk will be missed by a wide margin when theinvestment process gets started. In this article, Gang…
Estimating default correlations using a reduced-form model
Credit risk : Cuttingedge
Basel II revised default correlation values reflect industry experience, says Fitch
Basel II revised credit card default correlation values will be crucial guidelines to credit portfolio analysis under the IRB approach, says Fitch Ratings, a rating agency based in New York.
Correlated defaults: let's go back to the data
Estimates of asset value correlation are a key element of Merton-style credit portfoliomodels. Many practitioners have access to asset value data for a large universe of listedfirms, so estimation is within reach. Alan Pitts describes a statistical…
Correlation stress testing for value-at-risk
The correlation matrix is of vital importance for value-at-risk (VAR) modelsin the financial industry. Risk managers are often interested in stressing a subsetof market factors within large-scale risk systems containing hundreds ofmarket variables…
Correlation evidence
Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-terminvestor searching for fair value in credit correlation will want to understand what the historical dataactually says.
Correlation evidence
Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-term investor searching for fair value in credit correlation will want to understand what the historical data actually says. Here, Arnaud de Servigny and…
Pitfalls and alternatives
Correlation
Minimising extremes
Portfolio diversification often breaks down in stressed market environments, but the co-movement of asset prices in a tail risk regime may be modelled using a coefficient of tail dependence. Here, Yannick Malevergne and Didier Sornette show how such…
Correlation and credit risk
Active development of full credit portfolio modelling continues apace, even though it is not recognised in the proposed Basel II framework.
Globalisation and equity index exposure
Does the global presence of large multinational companies diminish the diversification effect inequity portfolios? Gary Robinson argues that this is indeed the case, and suggests a remedy
Great realisations
Volatility estimation