Boyer, Brian H.; Gibson, Michael S.; Loretan, Mico - Federal Reserve Board (Board of Governors of the … - 1997
Correlations are crucial for pricing and hedging derivatives whose payoff depends on more than one asset. Typically … "correlation breakdown." As a result, risk managers worry that their hedges will be useless when they are most needed, namely …. We make this point analytically, by way of several numerical examples, and via an empirical illustration. ; But, risk …