Anticipating Correlations:
A New Paradigm for Risk Management
Robert Engle

Cloth | 2009 | $39.50 / £27.95
176 pp. | 6 x 9 | 30 line illus.

e-Book | 2009 | $39.50 | ISBN: 978-1-4008-3019-0

Shopping Cart | Reviews | Table of Contents
Chapter 1 [PDF]

Financial markets respond to information virtually instantaneously. Each new piece of information influences the prices of assets and their correlations with each other, and as the system rapidly changes, so too do correlation forecasts. This fast-evolving environment presents econometricians with the challenge of forecasting dynamic correlations, which are essential inputs to risk measurement, portfolio allocation, derivative pricing, and many other critical financial activities. In Anticipating Correlations, Nobel Prize-winning economist Robert Engle introduces an important new method for estimating correlations for large systems of assets: Dynamic Conditional Correlation (DCC).

Engle demonstrates the role of correlations in financial decision making, and addresses the economic underpinnings and theoretical properties of correlations and their relation to other measures of dependence. He compares DCC with other correlation estimators such as historical correlation, exponential smoothing, and multivariate GARCH, and he presents a range of important applications of DCC. Engle presents the asymmetric model and illustrates it using a multicountry equity and bond return model. He introduces the new FACTOR DCC model that blends factor models with the DCC to produce a model with the best features of both, and illustrates it using an array of U.S. large-cap equities. Engle shows how overinvestment in collateralized debt obligations, or CDOs, lies at the heart of the subprime mortgage crisis--and how the correlation models in this book could have foreseen the risks. A technical chapter of econometric results also is included.

Based on the Econometric and Tinbergen Institutes Lectures, Anticipating Correlations puts powerful new forecasting tools into the hands of researchers, financial analysts, risk managers, derivative quants, and graduate students.

Robert Engle is the Michael Armellino Professor in the Management of Financial Services at New York University's Leonard N. Stern School of Business. His books include Cointegration, Causality, and Forecasting. He was awarded the 2003 Nobel Prize in economics.

Review:

"No doubt much more literature will develop in this area. Professor Engle has done a service by laying out how his mind is moving and thinking at the current time."--Peter Tompkins, The Actuary

Endorsements:

"This book offers a comprehensive and thorough discussion of the Dynamic Conditional Correlation class of models. It presents things in an easy-to-read, coherent, and unified framework, and includes new and interesting empirical findings and economic insights. Anticipating Correlations should serve as the authoritative reference for this important class of models."--Tim Bollerslev, Duke University

"This is a timely volume about how to model the conditional correlations among asset returns. Engle has pioneered much of the field and the book is likely to be popular."--Neil Shephard, University of Oxford

Table of Contents

Series:

• The Econometric and Tinbergen Institutes Lectures
  Herman van Dijk and Philip Hans Franses, Series Editors

Subject Areas:

• Economics
• Finance

Shopping Cart:

For customers in the U.S., Canada, Latin America, Asia, and Australia
Cloth: $39.50 ISBN13: 978-0-691-11641-9

For customers in Europe, Africa, the Middle East, and India
Cloth: £27.95 ISBN13: 978-0-691-11641-9

Our e-Book editions are available from these online vendors: Sony eBook Store Other e-Book Formats

Prices subject to change without notice

File created: 11/4/2009

Questions and comments to: webmaster@press.princeton.edu
Princeton University Press