Hedging Equity Correlation

darkearth · October 5th, 2007, 4:01 am

Last august, some of the structured products desks (who are often short Equity correlation) suffered from the market drop (and the raise of the correlation). Could someone tell me what are the means of hedging this in practice ?dark.

dimaggio · October 5th, 2007, 8:04 am

You could go short dispersion to hedge, but that is fraught with danger...you are selling individual vols..leaves oneself open to the unexpected

phaedo · October 5th, 2007, 4:02 pm

you can buy correlation swaps - usually 5-10pts cheaper than dispersionSB

darkearth · October 7th, 2007, 8:53 pm

thx guys.

mdrand · November 4th, 2007, 5:45 pm

you may even consider going long a stock basket trade.