Questions tagged [covariance-matrix]
The covariance-matrix tag has no usage guidance.
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Bayes Stein Porfolio Implementation
From this paper from Jorion.
Has anyone implemented this? How is the Covariance matrix estimated? It needs to estimate also the conditional distribution of the returns?
Best
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Black-Litterman: Why should the views be independent of each other?
This question relates to this question.
In the Black-Litterman framework views of inverstors on the market are modelled.
These views have a covariance-matrix $\Omega$.
I always found it quite ...
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How to get Multivariate Betas from an Estimated EWMA co variance Matrix?
I have a portfolio of 4 assets. I also have returns for 3 indices. I want to get the multivariate betas for these 4 assets-based on these assets. I only have the 7 x 7 covariance matrix estimated by a ...
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Practical implementation of Libor Market Model
I am trying to implement a project about the BGM model, suggested in the book "The Concepts and Practice of mathematical finance" by Mark Joshi.
My question is related to the forward volatility ...
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short-sale constraint with nonpositive-definite matrix in portfolio optimization
I need help about portfolio optimization in R. I have inverted matrix and I want to use it as an input in portfolio optimization. It was non-positive definite before I have handled it. In portfolio ...
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PCA on term structure of interest rates
Interest rate time series seems to be non-stationary whenever test is performed
But covariance or correlation matrix is derived from term structure time series which are non stationary and later PCA ...
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"Adding" risk-free asset to covariance matrix after the fact
Given a covariance matrix that was calculated from the returns of a number of risky assets.
Is there a way to "add" a risk-free asset to the covariance matrix without calculating its covariance with ...
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Portfolio Optimization - n risky assets
I'm currently implementing a CAPM model in Excel:
A portfolio of n risky assets when n=6 (in this case)
A riskless borrowing rate of 8% and riskless lending rate of 3%
I'm given the expected return ...
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Does one use the covariance or correlation matrix in cholesky decomposition to generate correlated samples
Can we interchangeably use Cholesky decomposition of covariance and correlation matrix to generate simulations? If not, in which situations do we use one or the other and why?
Thanks in advance.
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Explanation or implementation of Ledoit-Wolf estimator (without math packages)
I have calculated weights of selected assets in a market-neutral portfolio (presumably with min variance) using PCA and simple data covariance matrix.
The question is :
It is obvious that Cov Matrix ...
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Optimization: Factor model versus asset-by-asset model
In portfolio management one often has to solve problems of the quadratic form
$$
w^T \Sigma w + w^T c \rightarrow \min_{\omega}
$$
with portfolio weights $w \in \mathbb{R}^N$ a constant $c \in \mathbb{...
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How to treat large (5K-10K) non-positive-definite (particularly near-singular) covariance matrices for Cholesky decomposition?
I have a very large covariance matrix (around 10000x10000) of returns, which is constructed using a sample size of 1000 for 10000 variables. My goal is to perform a (good-looking) Cholesky ...
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VaR Calculation - Covariance matrix is not positive semidefinite
This is a basic question.
I have three assets, equally weighted, and all the mutual covariances are -1. Then, the covariance matrix looks like -
...
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Covariance estimation: shrinkage, random matrix theory, what else?
Shrinkage was much en-vogue before random matrix theory (RMT) took everybody's attention in covariance matrix estimation, however the latter also showed its limits. A plethora of other estimators has ...
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