IEORE4721 Correlation Risk Modeling and Management
Topics to be covered:
1: Motivation: Correlations are ubiquitous is finance
- Correlation and Investments
- Correlation and Trading
- Correlation and Risk Management
- Correlation and the Global Finance Crisis
- Correlation and Basel III
2: The big picture: An overview of 15 Correlation Models; Is there a ‘Best Correlation Model’? Will there be a ‘Black-Scholes-Merton’ correlation model, which will dominate correlation modeling?
3: Empirical Properties of Correlations
4: The Pearson Correlation Model – Work of the Devil?
5: Correlation vs Cointegration – Is Cointegration superior?
6: The Gaussian Copula – Rightfully blamed for the Global Financial Crisis?
7: The OFGC – One-factor Gaussian Copula model “Stupid and Dangerous”? (Paul Willmot) (applied by Basel II and III)
8: Quantifying Market Correlation risk and Credit Correlation risk: Vanna, Cora and Gora
9: Stochastic Correlation Models
10: Correlation Trading Strategies – Benefits and Limitations
11: Basel’s Correlation Approach – Too simplistic?