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Implied correlation from VaR

By John Cotter and François Longin

Abstract

Value at risk (VaR) is a risk measure that has been widely implemented by financial institutions. This paper measures the correlation among asset price changes implied from VaR calculation. Empirical results using US and UK equity indexes show that implied correlation is not constant but tends to be higher for events in the left tails (crashes) than in the right tails (booms)

Topics: Quantitative Finance - Risk Management, Quantitative Finance - Statistical Finance
Year: 2011
OAI identifier: oai:arXiv.org:1103.5655
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