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The most simple methodology to create a valid correlation matrix for risk management and option pricing purposes

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  • Joseph Simonian

Abstract

We present a methodology for obtaining a valid correlation matrix from an invalid one for financial applications. In contrast to other approaches, the methodology described only requires the use of elementary matrix algebra and a simple randomization procedure.

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  • Joseph Simonian, 2010. "The most simple methodology to create a valid correlation matrix for risk management and option pricing purposes," Applied Economics Letters, Taylor & Francis Journals, vol. 17(18), pages 1767-1768.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:18:p:1767-1768
    DOI: 10.1080/13504850903299628
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    Cited by:

    1. S. Yaser Samadi & L. Billard & M. R. Meshkani & A. Khodadadi, 2017. "Canonical correlation for principal components of time series," Computational Statistics, Springer, vol. 32(3), pages 1191-1212, September.
    2. Kawee Numpacharoen & Amporn Atsawarungruangkit, 2012. "Generating Correlation Matrices Based on the Boundaries of Their Coefficients," PLOS ONE, Public Library of Science, vol. 7(11), pages 1-7, November.

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