Calibration of factor models with equity data: parade of correlations

Alexander L. Baranovski

MPRA Paper from University Library of Munich, Germany

Abstract: This paper describes the process of ML-estimating of the equity correlations which can be used as proxies for asset correlations. In a Gaussian framework the ML-estimators are given in closed form. On this basis the impact of the Lehman’s collapse on the dynamics of correlations is investigated: after the Lehman failure in September 2008 the rise in correlations took place across all economic sectors.

Keywords: intra/inter asset correlations; maximum likelihood estimation; single risk factor model; normal mixture; VAR of equity portfolio (search for similar items in EconPapers)
JEL-codes: C10 (search for similar items in EconPapers)
Date: 2012-01-30
New Economics Papers: this item is included in nep-rmg
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