Defining dependence - the changing face of asset class correlation


The most recent round of consultation papers (CP) on the implementation of Solvency II published by Ceiops included the curious CP74 which focused on the use of correlation (see box below for a definition) in the standard solvency capital requirement formula. Curious, because it is unusual for a consultation paper to spend so long rubbishing the conceptual and practical basis for the measure it is proposing.

According to the paper, “numerous examples can be found where… correlations do not well

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