Risk evaluation with enhaced covariance matrix

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

Papers from arXiv.org

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.

Date: 2006-12, Revised 2007-05
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Journal Article: Risk evaluation with enhanced covariance matrix (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:physics/0612059

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