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Correlation Swap


An over-the-counter swap that allows investors to take bets on, or hedge against, risks associated with the empirical correlation of a basket of underlying assets. It pays off the observed statistical correlation between the returns of underlying underlying assets, against a preset price. The underlying assets should be actively traded and have observable prices over measurable periods. Prominent examples are: interest rates, exchange rates, stocks, commodities, etc.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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