This month we will define correlation and its effect on a portfolio, as well as on the pricing and properties of a structured product linked to a basket. In the next issue, we will consider how correlation is marked and traded and the effect of different levels of correlation on true multi-asset products such as worst-of options.
Correlation is the expected movement between two assets relative to their volatilities. A correlation of 100% means that the two always move perfectly together (though
The week on Risk.net, July 7-13, 2018Receive this by email