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Basel II and the Risk Management of Basket Options with Time-Varying Correlations

by International Journal of Central Banking
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Current price ₹1,077.00
Original price ₹1,544.00
Original price ₹1,544.00
Original price ₹1,544.00
(-30%)
₹1,077.00
Current price ₹1,077.00

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Book cover type: Paperback
  • ISBN13: 9781249569930
  • Binding: Paperback
  • Subject: N/A
  • Publisher: Bibliogov
  • Publisher Imprint: Bibliogov
  • Publication Date:
  • Pages: 34
  • Original Price: USD 15.75
  • Language: English
  • Edition: N/A
  • Item Weight: 82 grams
  • BISAC Subject(s): General

The impact of jumps, regime switches, and linearly changing correlation term structures on the risk management of basket options has been examined in this paper. First, the results show that there is an asymmetric correlation effect on the value-at-risk of basket options. Second, the time at which a correlation shock occurs during the life of an option is particularly important for hedged basket options. Finally, the square-rootof- time rule can lead to severe underestimation of value-at-risk for basket options with time-varying correlations - for some cases, even by a factor exceeding the minimum regulatory stress factor.

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