Risk evaluation with enhanced covariance matrix

Krzysztof Urbanowicz (), Peter Richmond and Janusz A. Hołyst

Physica A: Statistical Mechanics and its Applications, 2007, vol. 384, issue 2, 468-474

Abstract: We propose a route for the evaluation of risk based on a transformation of the covariance matrix. The approach uses a ‘potential’ or ‘objective’ function. This allows us to rescale data from different assets (or sources) such that each data set then has similar statistical properties in terms of their probability distributions. The method is tested using historical data from both the New York and Warsaw stock exchanges.

Keywords: Financial risk; Stochastic processes; Probability distribution; Stock market data; Correlations (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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Working Paper: Risk evaluation with enhaced covariance matrix (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:384:y:2007:i:2:p:468-474

DOI: 10.1016/j.physa.2007.05.034

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