Anticipating correlations: a new paradigm for risk management

Introduction

1. Correlation Economics

1.1. Introduction

1.2. How Big Are Correlations?

1.3. The Economic of Correlations

1.4. An Economic Model of Correlations

1.5. Additional Influences on Correlations

2. Correlations in Theory

2.1. Conditional Correlations

12.2. Copulas

12.3. Dependence Measures

12.4. On the Value of Accurate Correlations

3. Models for Correlations

3.1. The Moving Average and the Exponential Smoother

3.2. Vector GARCH

3.3. Martix Formulations and Results for Vector GRACH

3.4. Constant Conditional Correlation

3.5. Orthogonal GARCH

3.6. Dynamic Conditional Correlation

3.7. Alternative Approaches and Expanded Data Sets

4. Dynamic Conditional Correlation

4.1. DE-GARCHING

4.2. Estimating the Quasi-Correlations

4.3. Rescaling in DCC

4.4. Estimation of the DCC Model

5. DCC Performance

5.1. Monte Carlo Performance of DCC

5.2. Empirical Performance

6. The MacGyver Method

7. Generalized DCC Models

7.1. Theoretical Specification

7.2. Estimating Correlations for Global Stock and Bond Returns

8. Factor DCC

8.1. Formulation of Factor Versions of DCC

8.2. Estimation of Factor Models

9. Anticipating Correlations

9.2. Forecasting

9.2. Long-Run Forecasting

9.3. Hedging Performance In-Sample

9.4. Out-of-Sample Hedging

9.5. Forecasting Risk in the Summer of 2007

10. Credit Risk and Correlations

11. Economic Analysis of the DCC Model

11.1. Variance Targeting

11.2. Correlation Targeting

11.3. Asymptotic Distribution of DCC

12. Conclusion

References

Index