ASSESSING IMPLIED CORRELATIONS FOR FX OPTIONS
ISSUES:
 
Since knowing to exchange rates allows you to calculate a third (e.g. given euro/dollar and dollar/yen you can
calculate euro/yen), knowing the variances of those three currency pairs means you can also calculate their
correlations. As the options markets gives a market forecast of future volatility - called implied volatility - these
volatilities from FX options can also be used to calculate market forecasts of future correlations. How good
are these forecasts? Can they be beaten by more standard time series methods of forecasting correlation?
 
SELECTED READING:
 
Is implied correlation worth calculating? Evidence from foreign
Walter, Christian and Jose A. Lopez (2000), "
", Working Papers in Applied Economic Theory, Federal Reserve Bank
exchange options and historical data
of San Francisco.
 DATA SOURCE: Some Option data available on Ecowin, more detail may require contacts in investment
banks

VARIANCE DECOMPOSITION OF ASSET RETURNS 

ISSUES:
 
Campbell and Ammer have proposed a dynamic ac英语论文网 【http://www.51lunwen.org】counting identity which can be used to find what
underlying factors (e.g. inflation news, real interest rate news) drive the volatility of excess returns on stocks
and bonds. They have applied this decomposition to the US market. What would this decomposition look like
for other countries/other markets. The UK for example?
 
SELECTED READING:
 
Campbell J. Ammer J. “What moves stocks and Bond market”? A variance decomposition for long term
assets returns” NBER WP no. 3760 (also in Journal of Finance  68 (1993)
 
Barr D., Peseran B. “An assessment of the relative importance of real interest rates , inflation and term
premiums in determining the prices of real and nominal UK bonds” Review of Economics and Statisitics
(1997) 
 
DATA SOURCE: Bond yields (even zero coupon) and stock market data are available in Ecowin for a
www.bankofengland.co.uk for UK bonds) 
number of countries (and/or

SOVEREIGN RISK

ISSUES:
 
Projects on sovereign risk could address several issues such as the modelling or pricing of sovereign risk, the
empirical determinants of sovereign bond credit spread changes, the link between default and currency
crises, the determinants of sovereign credit rating. 
 
SELECTED READING:
 
Duffie, D, and L. Pedersen and K Singleton (2003), “Modelling sovereig 本文来自：英语论文网 【http://www.51lunwen.org】