Dynamic Implied Correlation Modeling and Forecasting in Structured Finance

Research output: Contribution to journal › Article › Research › peer review

Authors

  • Sebastian Löhr
  • Olga Mursajew
  • Daniel Rösch
  • Harald Scheule

Research Organisations

External Research Organisations

  • UTS University of Technology Sydney
  • University of Regensburg
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Details

Translated title of the contributionDynamische implizite Korrelationsmodellierung und Vorhersage in der strukturierten Finanzierung
Original languageEnglish
JournalJournal of Futures Markets
Volume2013
Issue number33, 11
Publication statusPublished - 2013

Abstract

Correlations are the main drivers for credit portfolio risk and constitute a major element in pricing credit derivatives such as synthetic single‐tranche collateralized debt obligation swaps. This study suggests a dynamic panel regression approach to model and forecast implied correlations. Random effects are introduced to account for unobservable time‐specific effects on implied tranche correlations. The implied‐correlation forecasts of tranche spreads are compared to forecasts using historical correlations from asset returns. The empirical findings support our proposed dynamic mixed‐effects regression correlation model.

ASJC Scopus subject areas

Cite this

Dynamic Implied Correlation Modeling and Forecasting in Structured Finance. / Löhr, Sebastian; Mursajew, Olga; Rösch, Daniel et al.
In: Journal of Futures Markets, Vol. 2013, No. 33, 11, 2013.

Research output: Contribution to journal › Article › Research › peer review

Löhr S, Mursajew O, Rösch D, Scheule H. Dynamic Implied Correlation Modeling and Forecasting in Structured Finance. Journal of Futures Markets. 2013;2013(33, 11). doi: https://doi.org/10.1002/fut.21626
Löhr, Sebastian ; Mursajew, Olga ; Rösch, Daniel et al. / Dynamic Implied Correlation Modeling and Forecasting in Structured Finance. In: Journal of Futures Markets. 2013 ; Vol. 2013, No. 33, 11.
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