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Calibration of factor models with equity data: parade of correlations

By Alexander L. Baranovski

Abstract

This paper describes the process of ML-estimating of the equity correlations which can be used as proxies for asset correlations. In a Gaussian framework the ML-estimators are given in closed form. On this basis the impact of the Lehman’s collapse on the dynamics of correlations is investigated: after the Lehman failure in September 2008 the rise in correlations took place across all economic sectors.

Topics: C10 - General
Year: 2012
OAI identifier: oai:mpra.ub.uni-muenchen.de:36300

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