Correlation book

Slewfoot · July 14th, 2003, 10:20 am

What does it mean when a desk "runs a correlation book"? Does it measure, hedge or trade correlation of an investment portfolio? Or something else?

FDAXHunter · July 14th, 2003, 10:25 am

A correlation book trades things that use correlation as an input parameter for pricing, (unlike a vol book, which takes only volatility).So, stuff you are going to see in there is:Basket options, quanto options/swaps, mountain range options, rainbow options, tracking error products, dispersion trading, etc.Technically, there could be a "credit correlation" book, but it's never called that.Regards.

Money · July 14th, 2003, 11:39 am

so how does the desk hedge the correlation risk ?

FDAXHunter · July 14th, 2003, 11:39 am

... with correlation sensitive instruments, obviously.

A · July 14th, 2003, 1:17 pm

QuoteOriginally posted by: FDAXHunter... with correlation sensitive instruments, obviously.like correlation derivatives?can we have an example of product of this type?

FDAXHunter · July 14th, 2003, 1:20 pm

Like, how about anything that gets priced with respect to correlation:Quanto Swaps, Spread Options, Basket Options, Himalayas, Corr Swaps, Covar swaps, Altiplanos, Swaptions, blablablalba..

sunnyseasons · August 13th, 2003, 1:30 am

would you mind offering some related and useful references? Thanks a lot!

rajagopalp · August 15th, 2003, 3:43 pm

check this:http://www.neftci.com/papers/Correlatin ... minary.pdf