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%the most general methodology to create a valid correlation matrix for risk
management and option pricing purposes
%riccardo rebonato, peter j�ackel, quantitative research centre of the natwest
group, 19 th october 1999
%http://www.quarchome.org/correlationmatrix.pdf
%spectral decomposition
[cvec, cval]=eig(c); %original eigenvectors and
eigenvalues stored
cval_colvector=eig(c); %eigenvales in a column vector
postest=cval_colvector>=0 %testing if all eigenvalues are
non-negative
%cval_colvector_cor=cval_colvector.*postest; %setting -ve eigenvalues to
zero
cval_colvector_cor=cval_colvector.*postest + (not(postest)*0.00000001); %setting
-ve eigenvalues to a very small positive value
cval_cor=cval_colvector_cor*ones(1, n).*eye(n); %corrected eigenvalue matrix
chol(cdash)