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
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)
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 losses...
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 discuss...
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
Correlation measures are major drivers of value-at-risk. Brett Humphreys and Eric Raleigh review assumptions associated with calculating 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
Risk Awards 2008
Risk Awards 2008
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
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...
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. ...