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- Title
Parameterizing correlations: a geometric interpretation.
- Authors
Rapisarda, Francesco; Brigo, Damiano; Mercurio, Fabio
- Abstract
In this paper, we present a new interpretation of the parameterization of a correlation matrix proposed earlier by some authors (Jäckel & Rebonato, 1999). This interpretation is based on viewing any correlation matrix as the result of the scalar products of a suitable set of unit vectors in a multidimensional space, each rotated from all the others by generalized Euler angles. It is possible to exploit the intuitive nature of this approach in order to obtain more efficient optimization schemes when calibrating a reduced-form model to a desired correlation structure.
- Subjects
BUSINESS finance; STATISTICAL correlation; PARAMETER estimation; INVESTMENT analysis; ANALYSIS of variance; FACTOR analysis; RISK assessment
- Publication
IMA Journal of Management Mathematics, 2007, Vol 18, Issue 1, p55
- ISSN
1471-678X
- Publication type
Article
- DOI
10.1093/imaman/dpl010