Correlation: Alternative realities

Correlation: Alternative realities

For a discipline rooted in statistics and maths, op risk modelling is disturbingly prone to arguments about whether the earth is flat or round. The current bone of contention is correlation. The Basel Accord gives advanced measurement approach (AMA) banks the option to reduce their capital if they can prove to regulators there is a diversification benefit across the various risks the organisation faces. Some banks and consultants say correlation can be measured precisely and could result in a