ADJUSTING CORRELATION MATRICES

Ángel León (), Josep E. Peris, Begoña Subiza and Jose Silva
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Ángel León: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: The article proposes 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 we do not wish to alter but they change in order to obtain a consistent Finger correlation matrix.

Keywords: Stochastic; Volatility; Skewness; Kurtosis; Pricing. (search for similar items in EconPapers)
Pages: 42 pages
Date: 2000-11
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http://www.ivie.es/downloads/docs/wpasad/wpasad-2000-24.pdf Fisrt version / Primera version, 2000 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2000-24

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