Correlation
High yield spreads no longer correlated to default rates: Jerry Tempelman column
High yield spreads are more highly correlated to the VIX index than to default rates.
Morgan Stanley Jump
Morgan Stanley has issued Jump Securities, a structured products based on the performance of a basket composed of the iShares MSCI Emerging Markets Index Fund and the Dow Jones Eurostoxx 50. Principal is not protected and the upside above the target…
Malaysian investors hunt for hybrids
Hybrid structures are increasingly popular in Malaysia as investors look to keep the cost of hedging down and moving away from capital protected products
Surviving skew
Skew skyrocketed in May, breaking through levels last reached in 2008 after the bankruptcy of Lehman Brothers, while volatility and correlation also spiked. The dislocations are rumoured to have caused losses for some exotic equity books. How did dealers…
Concerns grow on correlation of derivatives collateral
Sovereign debt crisis raises fears about correlation of derivative collateral denominated in domestic currencies
Basel Committee adjusts market risk framework
A formal 8% floor is set for correlation trading capital charge following analysis of QIS results.
Energy market correlations: have they changed permanently?
Have traditional energy market correlations changed permanently as a result of the credit bubble bursting and how will this impact trends in price forecasting and modelling? Pauline McCallion reports
Hybrid structures tempt investors
Volatile and uncertain markets have got investors thinking about diversified exposures to multiple asset classes both as yield generating opportunities and portfolio hedges. Hybrid structures, which blend discrete asset exposures into one pay-off, are…
Vol and correlation cause equity derivatives pain
Hedge funds and dealers reported to suffer losses from recent equity derivatives moves
The inflation pricing conundrum
Fear of a spike in consumer prices has created greater demand for inflation protection from a variety of participants. This has increased the need for inflation pricing and analytics tools – but it is not as simple as tweaking existing models used for…
Valid Assumptions Required: an analysis of VaR for energy markets
In this 10-part series, Brett Humphreys takes a fresh look at the widely used risk measure value-at-risk (VaR), urging risk managers to be more aware of the many assumptions that go into the calculation to produce the VaR number.
Simply does it
Structured products have been used as a scapegoat for some of the problems that led to the financial crisis. But Cater Allen, the UK private banking arm of Santander, says transparent products can regain investors’ confidence. Clare Dickinson reports
Fast correlation Greeks by adjoint algorithmic differentiation
Adjoint methods have recently been proposed as an efficient way to calculate risk through Monte Carlo simulation. Luca Capriotti and Mike Giles extend these ideas and show how adjoint algorithmic differentiation allows for fast calculation of price…
A dynamic model for correlation
Equity markets have experienced a significant increase in correlation during the crisis, resulting in exotic derivatives portfolios realising large losses. As larger correlations in downward scenarios are already implied in the index option market in the…
Now you PRDC them...
Power-reverse dual-currency notes proved a bonanza for dealers when markets were tame, but risk-managing the product has become a drain on resources and cash in recent years. As a result, some firms have decided to exit the market. Mark Pengelly…
Pricing and hedging basket credit derivatives in the Gaussian copula
The static assumptions of the Gaussian copula model have long presented an obstacle to dynamic hedging of credit portfolio tranches. Here, Jean-David Fermanian and Olivier Vigneron combine the copula with a spread diffusion to derive hedging error as…
Wrestling with correlation
The correlation risk inherent in most structured products represents an ongoing headache for manufacturers. While new regulatory proposals would affect how much risk banks keep on their books, market dynamics are at play, especially the rise in…
