Risk Management of Correlation Products

EUROPEAN FINANCIAL MANAGEMENT, Vol. 3 No. 2, 1997

Posted: 13 Feb 1997

Abstract

Trading units within the banking and dealer community that trade exotic instruments are well aware of the hazards of using traditional tools in analyzing the risks resulting from positions taken in their specialized markets. The global risk management systems within these organizations have been slower to recognize the new risk profiles created by more recently traded exotic instruments. For traditional risks that are separable, the evaluation of risk at the individual trading units and the subsequent aggregation of risk across trading units captures the risks inherent in the portfolio. However, with non-traditional, non-separable risks, this division (by trading unit) and subsequent aggregation (by risk managers) of risks may obscure an increasing amount of risk found in the firm's trading operation.

JEL Classification: G13, G24, G11

Suggested Citation

Mahoney, James M., Risk Management of Correlation Products. EUROPEAN FINANCIAL MANAGEMENT, Vol. 3 No. 2, 1997. Available at SSRN: https://ssrn.com/abstract=8107

James M. Mahoney (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-8910 (Phone)
212-720-1577 (Fax)

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