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Calibration of factor models with equity data: parade of correlations

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  • Baranovski, Alexander L.

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.

Suggested Citation

  • Baranovski, Alexander L., 2012. "Calibration of factor models with equity data: parade of correlations," MPRA Paper 36300, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:36300
    as

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    File URL: https://mpra.ub.uni-muenchen.de/36300/1/MPRA_paper_36300.pdf
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    References listed on IDEAS

    as
    1. Timo Altmann & Thorsten Schmidt & Winfried Stute, 2008. "A Shot Noise Model For Financial Assets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 87-106.
    2. Duellmann, Klaus & Küll, Jonathan & Kunisch, Michael, 2010. "Estimating asset correlations from stock prices or default rates--Which method is superior?," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2341-2357, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    intra/inter asset correlations; maximum likelihood estimation; single risk factor model; normal mixture; VAR of equity portfolio;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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