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Risk Management of Correlation Products

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  • James M. Mahoney

Abstract

Trading units within the banking and dealer community that trade exotic instruments are well aware of the hazards of using traditional tools in analysing the risks resulting from positions taken in their specialised markets. The global risk management systems within these organisations have been slower to recognise the new risk profiles created by more recently traded exotic instruments. For traditional risks that are separable, the evaluation of risk at the individual trading units and the subsequent aggregation of risk across trading units captures the risks inherent in the portfolio. However, with non‐traditional, non‐separable risks, this division (by trading unit) and subsequent aggregation (by risk managers) of risks may obscure an increasing amount of risk found in the firm's trading operation.

Suggested Citation

  • James M. Mahoney, 1997. "Risk Management of Correlation Products," European Financial Management, European Financial Management Association, vol. 3(2), pages 155-174, July.
    • Handle: RePEc:bla:eufman:v:3:y:1997:i:2:p:155-174
    DOI: 10.1111/1468-036X.00037
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    Cited by:

    1. Azad, A.S.M. Sohel & Batten, Jonathan A. & Fang, Victor, 2015. "What determines the yen swap spread?," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 1-13.
    2. Sohel Azad, A.S.M. & Batten, Jonathan A. & Fang, Victor & Wickramanayake, Jayasinghe, 2015. "International swap market contagion and volatility," Economic Modelling, Elsevier, vol. 47(C), pages 355-371.

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