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Title: Boundaries of Correlation Adjustment with Applications to Financial Risk Management
Authors: Kawee Numpacharoen
Kornkanok Bunwong
Financial Product Development
Mahidol University
South Carolina Commission on Higher Education
Keywords: Economics, Econometrics and Finance;Mathematics
Issue Date: 1-Sep-2013
Citation: Applied Mathematical Finance. Vol.20, No.4 (2013), 403-414
Abstract: In recent years, stress testing has become a regulatory requirement for risk assessment in financial institutions. To perform stress testing in multi-asset case, adjusting the correlation matrix to an extreme level is an important process. With a larger matrix, it is more difficult to choose the right correlation coefficients such that the newly adjusted correlation matrix is still valid. In this article, we present a systematic way to obtain the boundaries of a correlation matrix for both single stress and multiple stress cases, which can help determine how much the correlation should be adjusted in the first place. © 2013 Copyright Taylor and Francis Group, LLC.
ISSN: 14664313
Appears in Collections:Scopus 2011-2015

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