Explanation

When a trader expects correlation to rise in the future, they should implement strategies that benefit from increased correlation among assets. Let's analyze each option:

I. Enter correlation swaps as a party to pay realized correlation - CORRECT

• In a correlation swap, the party paying realized correlation receives fixed correlation
• If correlation rises above the fixed rate, the payer benefits
• This strategy profits when actual correlation increases

II. Buying put options on an index and selling put options on individual components - CORRECT

• When correlation rises, individual stocks tend to move together more closely
• Index put options become more valuable as diversification benefits decrease
• Selling individual stock puts benefits from reduced idiosyncratic risk
• This is a classic dispersion trade that profits from rising correlation

III. Paying fixed in a variance swap on an index and receiving fixed on individual components - INCORRECT

• This is a dispersion trade that benefits from DECREASING correlation
• When correlation falls, index variance decreases relative to individual stock variances
• The trader would lose money if correlation rises

Therefore, only strategies I and II are appropriate for a trader expecting correlation to rise. The correct answer is I and II (Option D).