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Title Correlation & enterprise risk management - Structured Credit Investor
URL https://www.structuredcreditinvestor.com/Correlation/
Category Business --> Business Services
Meta Keywords Credit risk
Meta Description Correlation means the relationship between two or more variables.
Owner Structured Credit Investor
Description
Correlation means the relationship between two or more variables. In the credit market, it refers to default correlation; i.e. the probability of default of one reference entity or instrument in relation to another or others. The calculation of implied Correlation trading in a credit portfolio requires complex mathematical modelling. However, the market-based pricing of standardised index tranches enables the derivation and trading of implied correlation on those tranches. Tranches are portfolios of credit risk demarcated through a given attachment point (the minimum level of losses to which a tranche is exposed) and a detachment point (the maximum level of losses to which it is exposed) on a broader credit portfolio and are known as equity tranches, mezzanine tranches and senior tranches. On the indices, tranches are traded with standardised attachment and detachment points.