The risk of financial loss due to unfavorable movements in the correlation between two or more assets, correlation risk is a critical factor in many areas of finance, including trading, investing, portfolio management and regulation. As was vividly demonstrated by the 20072009 global financial crisis, correlations also play a vital role in systemic crises, where sudden increases in correlations can lead to devastating losses.
As a consequence, over the past several years, correlation risk has become a major focus in the risk management departments of most major financial institutions. In addition, correlation is also the centerpiece of the Basel Accords to derive value at risk (VAR), credit value at risk, (CVAR) and credit value adjustment (CVA).
Written by a leading international authority in the field, Correlation Risk Modeling and Management is the first hands-on guide to this increasingly crucial topic. Designed to function as both a working resource for an array of finance professionals, including risk managers, analysts, traders, brokers, compliance officers and controllers, as well as a key student text/study guide, this book:
- Provides comprehensive, practical coverage of both traditional and new methods and models
- Includes in-depth coverage of the Basel III correlation risk management framework
- Explores new correlation risk measures of the Basel III accord, including the Basel’s credit risk valuation with correlated wrong-way risk and correlated double defaults.
- Contains interactive correlation modeling software, in Excel and VBA
- Features an accompanying website offering a gold mine of additional materials
- Supplies chapter-end problems and questions that let you test and reinforce your understanding
Correlation Risk Management and Modeling is an indispensable resource for anyone with exposure to financial correlations and financial correlation risk. It also is an excellent graduate-level text and a valuable study guide for those preparing to sit for their CFA, PRMIA, CAIA exams or other related certification tests.
Praise for The Definitive Guide to CDOs: Application, Pricing, and Risk Management.
“In the past, derivatives researchers have devoted a great deal of effort to modeling volatility, but have not paid enough attention to correlation. The crisis of 2008 showed us just how important correlations can be. This book looks at all aspects of correlation modeling and will be a valuable resource for both academics and practitioners.”
John Hull, Maple Financial Professor of Derivatives and Risk Management Joseph L. Rotman School of Management University of Toronto
“This book zeroes in on the quantitative issue at the heart of the crisis. We are way past due on a book of this nature.”
Peter Carr, PhD., Global Head of Market Modeling, Morgan Stanley Executive Director of the Masters in Math Finance Program, NYU
“This book is a very timely and needed reference reviewing the various approaches to correlation modelling from across all areas of OTC derivatives analytics. The author contributed broadly to the subject and the insights he shares will be useful to practitioners and academics alike.”
Claudio Albanese, CEO, Global Valuation
About the Author
GUNTER MEISSNER, PH.D., heads Dersoft (www.dersoft.com), the software company behind TradeSmart, a software package that derives futures, options, and swaps prices and risk parameters. In addition, he runs a hedge fund (www. cassandracm.com), and is Adjunct Professor of Mathematical Finance at NYU.
Dr. Meissner joined Deutsche Bank in 1990, where he traded interest rate futures, swaps, and options in Frankfurt and New York. He became Head of Product Development in 1994, responsible for originating algorithms for new derivatives products. In 1995/1996 Dr. Meissner became Head of Options at Deutsche Bank Tokyo. From 1997 to 2007, he was Professor of Finance at Hawaii Pacific University. From 2008 to 2013 he was Director of the Master in Financial Engineering program at the Shidler College of Business at the University of Hawaii. The author of numerous published papers on derivatives in international journals, Dr. Meissner also is a frequent speaker at international conferences and seminars and the author of four other books, including The Definitive Guide to CDOs: Application, Pricing, and Risk Management.
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