Author:
Teng Long,Wu Xueran,Günther Michael,Ehrhardt Matthias
Abstract
In many areas of finance and of risk management it is interesting to know how to specify time-dependent correlation matrices. In this work we propose a new methodology to create valid time-dependent instantaneous correlation matrices, which we called correlation flows. In our methodology one needs only an initial correlation matrix to create these correlation flows based on isospectral flows. The tendency of the time-dependent matrices can be controlled by requirements. An application example is presented to illustrate our methodology.
Subject
Applied Mathematics,Modelling and Simulation,Numerical Analysis,Analysis,Computational Mathematics
Cited by
5 articles.
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