Calibration of factor models with equity data: parade of correlations

Baranovski, Alexander L. (2012): Calibration of factor models with equity data: parade of correlations.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: intra/inter asset correlations, maximum likelihood estimation, single risk factor model, normal mixture, VAR of equity portfolio
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General

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