A note on adjusting correlation matrices

A. Leon, Josep E. Peris, Jose Silva and Begoña Subiza

Applied Mathematical Finance, 2002, vol. 9, issue 1, 61-67

Abstract: A new algorithm for adjusting correlation matrices and for comparison with Finger's algorithm, which is used to compute Value-at-Risk in RiskMetrics for stress test scenarios. The solution proposed by the new methodology is always better than Finger's approach in the sense that it alters as little as possible those correlations that one would wish not to alter, but they change in order to obtain a consistent Finger correlation matrix.

Keywords: Correlation Matrix; Kuhn-TUCKER Conditions; Eigenvalue; Value-AT-RISK (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1080/13504860210136721

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