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Considering two proxies of SMEs' asset correlation on the European market

Drianne, Pierre-Matthias
(2021)

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DRIANNE_46301500_2021.pdf
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Details

Supervisors
Vrins, Frédéric
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
Following different projects conducted at the European Investment Fund, this thesis aims to analyse in which extent a model used for measuring SMEs asset correlation is appropriate when considering two typical proxies: equity and credit default swap correlations. By considering the EuroStoxx sectorial indices, we offer in a way an exploratory analysis of the European equity and credit derivatives market from 2011 to 2020. This shows strongly correlated sectors across the whole market, especially during the last year marked by the covid pandemic. Then, we study how the stock and credit markets are correlated with the economy, through the use of Kalman filters. Furthermore, we notably provide values, that we call inter and intra components, that characterize the correlation between any pair of companies within the European market based on their sector or pair of sectors. Finally, we analyse the accuracy of our model. We mainly find that the considered model is quite accurate in estimating pairwise equity and CDS correlations. Nevertheless, arising values significantly differ from those used by institutions such as the European Investment Fund that are based on asset correlation formula given by Basel II.