Correlation
Correlated defaults: let's go back to the data
Estimates of asset value correlation are a key element of Merton-style credit portfoliomodels. Many practitioners have access to asset value data for a large universe of listedfirms, so estimation is within reach. Alan Pitts describes a statistical…
Correlation stress testing for value-at-risk
The correlation matrix is of vital importance for value-at-risk (VAR) modelsin the financial industry. Risk managers are often interested in stressing a subsetof market factors within large-scale risk systems containing hundreds ofmarket variables…
Correlation evidence
Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-terminvestor searching for fair value in credit correlation will want to understand what the historical dataactually says.
Correlation evidence
Like ratings, default correlation is an area of fierce industry debate. But any fundamental, long-term investor searching for fair value in credit correlation will want to understand what the historical data actually says. Here, Arnaud de Servigny and…
Pitfalls and alternatives
Correlation
Minimising extremes
Portfolio diversification often breaks down in stressed market environments, but the co-movement of asset prices in a tail risk regime may be modelled using a coefficient of tail dependence. Here, Yannick Malevergne and Didier Sornette show how such…
Correlation and credit risk
Active development of full credit portfolio modelling continues apace, even though it is not recognised in the proposed Basel II framework.
Globalisation and equity index exposure
Does the global presence of large multinational companies diminish the diversification effect inequity portfolios? Gary Robinson argues that this is indeed the case, and suggests a remedy
Great realisations
Volatility estimation