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Article: A Black–Litterman approach to correlation stress testing

TitleA Black–Litterman approach to correlation stress testing
Authors
Issue Date2014
PublisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/14697688.asp
Citation
Quantitative Finance, 2014, v. 14 n. 9, p. 1643-1649 How to Cite?
AbstractCorrelation stress testing is motivated by a well-known phenomenon: correlations change under financial crises. The adjustment of correlation matrices may be required to evaluate the potential impact of these changes. Very often, some correlations are explicitly adjusted (core correlations), with the remainder left unspecified (peripheral correlations), although it would be more natural for both core correlations and peripheral correlations to vary. However, most existing methods ignore the potential change in peripheral correlations. In this paper, we propose a Black-Litterman approach to correlation stress testing in which the stress impact on the core correlations is transmitted to the peripheral correlations through the dependence structure of the empirical correlations. © 2014 Copyright Taylor & Francis Group, LLC.
Persistent Identifierhttp://hdl.handle.net/10722/203429
ISSN
2015 Impact Factor: 0.794
2015 SCImago Journal Rankings: 0.565
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorNG, FC-
dc.contributor.authorLi, WK-
dc.contributor.authorYu, PLH-
dc.date.accessioned2014-09-19T15:10:27Z-
dc.date.available2014-09-19T15:10:27Z-
dc.date.issued2014-
dc.identifier.citationQuantitative Finance, 2014, v. 14 n. 9, p. 1643-1649-
dc.identifier.issn1469-7688-
dc.identifier.urihttp://hdl.handle.net/10722/203429-
dc.description.abstractCorrelation stress testing is motivated by a well-known phenomenon: correlations change under financial crises. The adjustment of correlation matrices may be required to evaluate the potential impact of these changes. Very often, some correlations are explicitly adjusted (core correlations), with the remainder left unspecified (peripheral correlations), although it would be more natural for both core correlations and peripheral correlations to vary. However, most existing methods ignore the potential change in peripheral correlations. In this paper, we propose a Black-Litterman approach to correlation stress testing in which the stress impact on the core correlations is transmitted to the peripheral correlations through the dependence structure of the empirical correlations. © 2014 Copyright Taylor & Francis Group, LLC.-
dc.languageeng-
dc.publisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/14697688.asp-
dc.relation.ispartofQuantitative Finance-
dc.titleA Black–Litterman approach to correlation stress testing-
dc.typeArticle-
dc.identifier.emailLi, WK: hrntlwk@hkucc.hku.hk-
dc.identifier.emailYu, PLH: plhyu@hku.hk-
dc.identifier.authorityLi, WK=rp00741-
dc.identifier.authorityYu, PLH=rp00835-
dc.identifier.doi10.1080/14697688.2013.843022-
dc.identifier.scopuseid_2-s2.0-84906046443-
dc.identifier.hkuros238716-
dc.identifier.volume14-
dc.identifier.issue9-
dc.identifier.spage1643-
dc.identifier.epage1649-
dc.identifier.isiWOS:000341008100011-
dc.publisher.placeUnited Kingdom-

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