Risk Management

Download Correlation Risk Modeling and Management, + Website: An by Gunter Meissner PDF

By Gunter Meissner

A thorough advisor to correlation chance and its turning out to be significance in worldwide monetary markets

Ideal for an individual learning for CFA, PRMIA, CAIA, or different certifications, Correlation probability Modeling and Management is the 1st rigorous advisor to the subject of correlation danger. a comparatively neglected kind of chance until eventually it prompted significant unforeseen losses through the monetary situation of 2007 via 2009, correlation danger has turn into a massive concentration of the chance administration departments in significant monetary associations, quite in view that Basel III in particular addressed correlation threat with new rules. this gives a rigorous clarification of the subject, revealing new and up-to-date techniques to modelling and chance coping with correlation risk.

  • Offers complete assurance of a subject matter of accelerating value within the monetary world
  • Includes the Basel III correlation framework
  • Features interactive versions in Excel/VBA, an accompanying site with extra fabrics, and difficulties and questions on the finish of every chapter

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Read or Download Correlation Risk Modeling and Management, + Website: An Applied Guide including the Basel III Correlation Framework - With Interactive Models in Excel / VBA PDF

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Extra resources for Correlation Risk Modeling and Management, + Website: An Applied Guide including the Basel III Correlation Framework - With Interactive Models in Excel / VBA

Sample text

For details see Appendix 1B. WEBC01 11/25/2013 13:31:29 Page 13 Some Correlation Basics: Properties, Motivation, Terminology 13 Currently, year 2013, there is no industry-standard valuation model for correlation swaps. Traders often use historical data to anticipate rrealized. In order to apply swap valuation techniques, we require a term structure of correlation in time. However, no correlation term structure currently exists. We can also apply stochastic correlation models to value a correlation swap.

Here are the main ones: ■ ■ ■ ■ An extremely benign economic and risk environment from 2003 to 2006 with record low credit spreads, low volatility, and low interest rates. Increasing risk taking and speculation of traders and investors who tried to benefit in these presumably calm times. This led to a bubble in virtually every market segment, such as the housing market, mortgage market (especially the subprime mortgage market), stock market, and commodity market. S. S. national income to invest and speculate in the real estate, financial, and commodity markets.

Another way to derive VaR is the nonparametric VaR. This approach derives VaR from simulated historical data. See Markovich (2007) for details. WEBC01 11/25/2013 13:31:30 Page 15 Some Correlation Basics: Properties, Motivation, Terminology 15 where VaRP is the value at risk for portfolio P, and a is the abscise value of a standard normal distribution corresponding to a certain confidence level. It can be derived as =normsinv(confidence level) in Excel or norminv (confidence level) in MATLAB. a takes the values −∞ < a <+∞.

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