Implied correlation from VaR

John Cotter and François Longin

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

Abstract: Value at risk (VaR) is a risk measure that has been widely implemented by financial institutions. This paper measures the correlation among asset price changes implied from VaR calculation. Empirical results using US and UK equity indexes show that implied correlation is not constant but tends to be higher for events in the left tails (crashes) than in the right tails (booms).

Keywords: Implied Correlation; Value at Risk; Risk--Econometric models; Correlation (Statistics); Stock exchanges--Econometric models (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2006
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http://hdl.handle.net/10197/1156 First version, 2006 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1156

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