Covariance
Sunk by correlation
Equity Derivatives
A true test for value-at-risk
The three classic approaches for measuring portfolio value-at-risk do not compare like with like, argues Richard Sage. Here he presents a test portfolio to highlight the differences between calculation methods
The maturity effect on credit risk capital
In a mark-to-market approach to credit risk capital, ratings or spread volatility has the effect of making longer-maturity loans more capital-intensive. This is incorporated in the current Basel II proposals via a maturity adjustment factor. Arguing that…
Calibrating Libor
With a rich spectrum of maturities and tenors to contend with, the toughest aspect of pricing interest rate options is calibrating models of forward rates to market data. Here, Damiano Brigo and Fabio Mercurio present a scheme for simultaneously…