|
|
|
|
||||
|
||||
An Intuitively Valid Algorithm for Adjusting the Correlation Matrix in Risk Management and Option PricingKawee NumpacharoenPhatra Securities; Mahidol University - Department of Mathematics Kornkanok BunwongMahidol University - Department of Mathematics January 15, 2012 Abstract: Adjusting the correlation matrix plays an important role in risk management as well as option pricing. We usually adjust the correlation matrix by directly changing the correlation coefficient in the correlation matrix. However, there is a chance that the adjusted correlation matrix is not valid. In this paper, we present a new algorithm for adjusting the correlation matrix that maintains its validity. Furthermore, the correlative relationship among the assets that we do not want to adjust will not be affected by the adjustment. Therefore, the solution obtained from our new algorithm is considered to be intuitively valid.
Number of Pages in PDF File: 11 Keywords: Adjusting correlation, stress testing, correlation matrix JEL Classification: G13, G20, C63 working papers seriesDate posted: January 6, 2012 ; Last revised: August 15, 2012Suggested Citation |
|
||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo4 in 0.656 seconds
