Correlation Risk

From Open Risk Manual

Definition

Correlation Risk is the risk of a change in a Correlation parameter necessary for determination of the value of an instrument with multiple underlyings. [1]

Relevant instruments subject to correlation risk include all basket options, best-of-options, spread options, basis options, Bermudan options and quanto options. In a broader sense Correlation Risk is a component of Model Risk for all efforts of risk measurement that concern composite risks (e.g. in portfolio management context)

References

  1. Minimum capital requirements for market risk, BCBS D352

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