org.akutan.correlations
Class SpectralDecomposition

java.lang.Object
  extended by org.akutan.correlations.SpectralDecomposition

public class SpectralDecomposition
extends java.lang.Object

Implements the Spectral Decomposition method from the paper "The Most General Way to Create a Valid Correlation Matrix for Risk Management and Option Pricing Purposes" by Rebonato and Jaekel, 1999. It is available at http://www.quarchome.org/correlationmatrix.pdf

Since:
18 Dec 2008

Method Summary
static cern.colt.matrix.DoubleMatrix2D adjust(cern.colt.matrix.DoubleMatrix2D input)
          This method is from the paper "The Most General Way to Create a Valid Correlation Matrix for Risk Management and Option Pricing Purposes" by Rebonato and Jaekel, 1999.
 
Methods inherited from class java.lang.Object
clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait
 

Method Detail

adjust

public static cern.colt.matrix.DoubleMatrix2D adjust(cern.colt.matrix.DoubleMatrix2D input)

This method is from the paper "The Most General Way to Create a Valid Correlation Matrix for Risk Management and Option Pricing Purposes" by Rebonato and Jaekel, 1999.

The algorithm is roughly as follows:

Parameters:
input - Correlation matrix to be cleaned up
Returns:
Transformed correlation matrix which is now positive semi-definite and a valid correlation matrix (diagonal 1's and all elements on the interval (-1, 1).