Chessboard Distributions and Random Vectors with Specified Marginals and Covariance Matrix

Soumyadip Ghosh () and Shane G. Henderson ()
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Soumyadip Ghosh: School of Operations Research and Industrial Engineering, Cornell University, Ithaca, New York 14853
Shane G. Henderson: School of Operations Research and Industrial Engineering, Cornell University, Ithaca, New York 14853

Operations Research, 2002, vol. 50, issue 5, 820-834

Abstract: There is a growing need for the ability to specify and generate correlated random variables as primitive inputs to stochastic models.Moti vated by this need, several authors have explored the generation of random vectors with specified marginals, together with a specified covariance matrix, through the use of a transformation of a multivariate normal random vector (the NORTA method).A covariance matrix is said to be feasible for a given set of marginal distributions if a random vector exists with these characteristics. We develop a computational approach for establishing whether a given covariance matrix is feasible for a given set of marginals. The approach is used to rigorously establish that there are sets of marginals with feasible covariance matrix that the NORTA method cannot match. In such cases, we show how to modify the initialization phase of NORTA so that it will exactly match the marginals, and approximately match the desired covariance matrix.An important feature of our analysis is that we show that for almost any covariance matrix (in a certain precise sense), our computational procedure either explicitly provides a construction of a random vector with the required properties, or establishes that no such random vector exists.

Keywords: Simulation; random variable generation: random vector generation; Probability distributions: copulae (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (10)

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