correlation on the portfolio holdings. We find that both correlation hedging demands and intertemporal hedges due to increased …In this paper we address the issue of modeling extreme asset co-movements and their implications for the hedging … correlation specification, driven by latent and observable factors. With this we aim at replicating the stylized fact of increased …

Portfolio diversification and hedging have become more complicated in large part due to adverse developments in the … time-varying behavior of correlations, and consequently there is renewed appreciation for understanding how correlation … dynamics affect the diversification and hedging properties associated with various sets of assets and investment strategies …

We solve for the optimal portfolio allocation in a setting where both conditional correlation and the clustering of … when dynamic conditional correlation has been accounted for, and vice versa. Both effects have distinct portfolio … implications and cannot substitute each other. We also isolate the hedging demands due to macroeconomic and market conditions that …