Asset correlation
Repricing the cross smile: an analytic joint density
Original headline:
Source: Asia Risk
Derivatives contracts on multiple foreign exchange rates must be priced to avoid arbitrage by contracts on the cross-rates. Given the triangle of smiles for two underlyings and their cross, Peter Austing...
Original headline:
Source: Structured Products
Tail risk has become a hot topic as nervous investors seek assurances and product creators try to second-guess what the governments and the financial markets may throw at them next. Hannah Collins investigates...
Published online only
Source: Structured Products
Alpha strategies may result in lower volatility but they do not necessarily provide higher returns, according to market participants
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More Asset correlation articles
Cutting edge introduction
Original headline:
Source: Risk magazine
Copula functions that provide a way of splicing the probability distributions of multiple assets together have taken a lot of flak since the crisis. Laurie Carver introduces this month’s technical articles by looking at the fate of such methods –...
Marking systemic portfolio risk with the Merton model
Original headline:
Source: Asia Risk
A technical paper outlining a generalisation of Merton’s option formula in helping quantify systemic risk to portfolios of assets.
Marrying correlation and asset allocation
Original headline:
Source: Structured Products
Correlation in global equities has been on the rise for the past decade. The credit crisis, structural shifts in global financial flows and the rise of exchange-traded funds has meant that asset classes seem to be moving together. Rebecca Hampson reports...
Equity volatility backlash
Published online only
Source: Risk magazine
Taking a long equity volatility position is a favourite macro hedge for risk managers and traders across asset classes, but the trade doesn’t always work as expected. How has the volatility experienced in May and June affected macro hedging? Joel Clark...
A bottom-up model with top-down dynamics
Published online only
Source: Risk magazine
Yadong Li proposes a flexible, tractable and arbitrage-free bottom-up dynamic correlation modelling framework with a consistent stochastic recovery specification for multi-name credit derivatives. In this framework, the model’s spread dynamics can be...
The value of a variance swap – a question of interest
Published online only
Source: Risk magazine
Pricing equity variance swaps is well understood in the case of deterministic interest rates, but particularly for longer-dated swaps the stochastic nature of the rate cannot be ignored. Here, Per Hörfelt and Olaf Torné derive the fair strike when both...
A dynamic model for correlation
Published online only
Source: Risk magazine
Equity markets have experienced a significant increase in correlation during the crisis, resulting in exotic derivatives portfolios realising large losses. As larger correlations in downward scenarios are already implied in the index option market in...
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