Deconstructing correlation
Peter Austing introduces an analytic or semi-analytic valuation of basket options
When markets are stressed, assets become more strongly correlated. Just as there is an implied volatility smile, there is also a correlation smile. However, though it is known to exist, the correlation smile has been largely ignored in multi-asset derivatives pricing for reasons of practicality: there may not be liquid instruments to determine the smile, and even if it is known, practical pricing algorithms taking account of the smile may not exist.
CLICK HERE TO VIEW THE PDF
The former can be
More on Derivatives
Most read on Risk.net
- Banks hope final FRTB rules will ease NMRF burden
- Functional programming reaches for stardom in finance
- Asia moves: Natixis sales head moves to Barclays, new banking head for StanChart Singapore, and more
- Brexit novations ‘on hold’ to gain reg relief
- Buy-siders eye ways to get ahead of US resolution stay rules
Back to Top