Correlations in asynchronous markets
Lorenzo Bergomi addresses the issue of pricing multi-asset options in the context of asynchronous markets. Using the criterion that the carry profit and loss (P&L) vanishes, he derives the expression of the correlation estimator for the asynchronous case. He studies its historical behaviour for the case of the Stoxx 50, S&P 500 and Nikkei indexes, and compares his estimator with popular heuristic estimators. Finally, he characterises practical situations whereby correlations larger than one are materialised as a P&L
Multi-asset options have long been prominent among equity derivatives. The number of securities referenced in an equity payout may range from a few – in the case of, say, a basket option on indexes – to 50 for the case of a correlation swap on the components of the Stoxx 50 index. In addition, option payouts are generally written on baskets of securities that span all geographical areas.
Correlations in asynchronous markets
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Equity markets
The future of equity derivatives: perspectives for UK equities and dividends
Managing equity and dividend risk today requires new trading strategies and products. In a webinar convened by Risk.net and hosted by Eurex, three experts discuss what’s next for the UK and European markets.
Follow the moneyness
Barclays quants extend Bergomi’s skew stickiness ratio to all strikes
What gold's rise means for rates, equities
It has been several years since we have seen volatility in gold. An increase in gold volatility can typically be associated with a change in sentiment and investor behavior. The precious metal has surged this year on increased demand for safe haven…
Breaking the collateral silos – Navigating regulation with a strategic alternative
Emmanuel Denis, head of tri‑party services at BNP Paribas Securities Services, discusses why financial institutions must rethink old practices of collateral management and instead adopt a tri-party approach, with which equities can be managed as…
BAML and Morgan Stanley shift Indian P-notes to Europe
Tax changes trigger move out of Mauritius and Singapore
Volatility traders wrestle with digital risk of Brexit
Skew on major indexes leaps after market wakes up to risks of UK's referendum
New US tax rules could hamper ETN market, dealers warn
IRS’s forthcoming Section 871(m) rules could inadvertently capture legacy ETNs
Dealers fear death of dividend risk premia strategy
Shrinking dividend futures premium hurting investors
