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Extreme Risk Model Makeover: Credit Suisse

By staff Writer | Updated on November 01, 2010

The recent financial crisis was unkind to treasurers of many multinationals, in part because exposures they presumed to be uncorrelated–hence diversified and less risky–suddenly became highly correlated. Most foreign exchange rates, for example, were assumed to be largely uncorrelated, but in the crisis the U.S. dollar rallied almost uniformly against all world currencies.

“Correlations move closer to one when the world is about to end. Without taking this into account, many risk managers are relying on a diversification benefit exactly when it isn’t going to be there,” says Adrian Crockett, head of Credit Suisse Securities’ strategic finance group.

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