Efficient rank reduction of correlation matrices
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Publication:875015
DOI10.1016/J.LAA.2006.11.024zbMATH Open1112.65036arXivcond-mat/0403477OpenAlexW3125769231MaRDI QIDQ875015FDOQ875015
Authors: Igor Grubišić, Raoul Pietersz 
Publication date: 10 April 2007
Published in: Linear Algebra and its Applications (Search for Journal in Brave)
Abstract: Geometric optimisation algorithms are developed that efficiently find the nearest low-rank correlation matrix. We show, in numerical tests, that our methods compare favourably to the existing methods in the literature. The connection with the Lagrange multiplier method is established, along with an identification of whether a local minimum is a global minimum. An additional benefit of the geometric approach is that any weighted norm can be applied. The problem of finding the nearest low-rank correlation matrix occurs as part of the calibration of multi-factor interest rate market models to correlation.
Full work available at URL: https://arxiv.org/abs/cond-mat/0403477
Recommendations
ranknumerical examplescorrelation matrixLagrange multiplier methodLIBOR market modelgeometric optimisation
Numerical mathematical programming methods (65K05) Quadratic programming (90C20) Numerical solutions to overdetermined systems, pseudoinverses (65F20)
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