Hi all,Could anybody shed some light on how to get quanto correlation in illiquid market? I'd like to price some quanto derivatives and EURCHF vs CHF Libor correlation is needed for calculation. The market is quite illiquid there, so it is impossible to get implied correlations from market quotes. I thought about the historical correlation. But just calculate the correlation between the time series of FX rate and the libor rates seems to be too simple. And the data is really unstable, i.e. if the rolling period changes (daily, weekly, monthly...), the correlation changes dramatically. Is there any better solution? Any comment is appreciated!

http://papers.ssrn.com/sol3/papers.cfm? ... d=1895474I would use historical correlation with weekly or monthly data (depending on the size of the window) and take into account the uncertainty around this estimation (e.g. reserve 1std, etc.) More robust estimation methods can be used as well (e.g. Kendall'stau).