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Sep 24

Rank reduction of correlation matrices by majorization

Posted by abiao at 14:06 | Code » Matlab | Comments(0) | Reads(6819)
Rank reduction is useful for multi-factor derivative pricing and risk analysis, for instance, for a Bermudan swaption, Major, MajorW and MajorPower are MATLAB templates that may be used to find a low-rank correlation matrix locally nearest to a given correlation matrix, by means of majorization. Major implements equal weights on the entries of the correlation matrix. MajorW implements non-constant weights.

For an introductory of Rank reduction of correlation matrices by majorization paper can be downloaded at http://www.pietersz.org/majorization.pdf, with Matlab codes

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