Correlation risk, cross-market derivative products and portfolio performance
We consider portfolios whose returns depend on at least three variables and show the effect of the correlation structure on the probabilities of the extreme outcomes of the portfolio return, using a multivariate binomial approximation. the portfolio risk is then managed by using derivatives. We illustrate this risk management both with simple options, whose payoff depends upon only one of the underlying variables, and with more complex instruments, whose payoffs (and values) depend upon the correlation structure Copyright Blackwell Publishers Ltd. 1995.
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Volume (Year): 1 (1995)
Issue (Month): 2 ()
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