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...

This paper sets out to help explain why estimates of asset correlations based on equity prices tend to be considerably higher than estimates based on default rates. Resolving this empirical puzzle is highly important because, firstly, asset correlations are a key driver of credit risk and,...

This paper sets out to help explain why estimates of asset correlations based on equity prices tend to be considerably higher than estimates based on default rates. Resolving this empirical puzzle is highly important because, firstly, asset correlations are a key driver of credit risk and,...