A Mean-Reverting SDE on Correlation matrices

Details A Mean-Reverting SDE on Correlation matrices A Mean-Reverting SDE on Correlation matrices

2011-08-26

arxiv.org/abs/1108.5264v2

Mathematics

Probability

Scientific paper

We introduce a mean-reverting SDE whose solution is naturally defined on the space of correlation matrices. This SDE can be seen as an extension of the well-known Wright-Fisher diffusion. We provide conditions that ensure weak and strong uniqueness of the SDE, and describe its ergodic limit. We also shed light on a useful connection with Wishart processes that makes understand how we get the full SDE. Then, we focus on the simulation of this diffusion and present discretization schemes that achieve a second-order weak convergence. Last, we explain how these correlation processes could be used to model the dependence between financial assets.

Affiliated with

Also associated with

No associations

Rating

A Mean-Reverting SDE on Correlation matrices does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with A Mean-Reverting SDE on Correlation matrices, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and A Mean-Reverting SDE on Correlation matrices will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-501865