Publication: Boundaries of Correlation Adjustment with Applications to Financial Risk Management
2
Issued Date
2013-09-01
Resource Type
ISSN
14664313
1350486X
1350486X
Other identifier(s)
2-s2.0-84880017639
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Mahidol University
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SCOPUS
Bibliographic Citation
Applied Mathematical Finance. Vol.20, No.4 (2013), 403-414
Suggested Citation
Kawee Numpacharoen, Kornkanok Bunwong Boundaries of Correlation Adjustment with Applications to Financial Risk Management. Applied Mathematical Finance. Vol.20, No.4 (2013), 403-414. doi:10.1080/1350486X.2012.723517 Retrieved from: https://repository.li.mahidol.ac.th/handle/123456789/31700
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Title
Boundaries of Correlation Adjustment with Applications to Financial Risk Management
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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.