Corraling correlation


“Correlation has grown to be the biggest risk of a department, and indeed the biggest risk on our books,” says Alan Zagury, head of risk management trading within equities exotics and hybrids at JP Morgan in London. “Around 90% of structured products with correlation exposure issued by a bank are actually short correlation.” Correlation risk defines the mark-to-market change in the value of an asset when the correlation between underlying assets changes in a portfolio.

Dealers have built up

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