[R-SIG-Finance] correlation matrix

[Enrico Schumann]

Am 27.11.2011 10:52, schrieb Arun.stat:
> Hi Debashis, I dont think there is any direct implementation in R for that.

Just for the record: see for example function 'nearPD' in package 
Matrix, or 'repairMatrix' in package NMOF.

> What you need is to have a PD matrix for the underlying VCV matrix, which is
> not the case for yours. Do you have lot of missing data? May be you can try
> with constructing VCV matrix after considering pairwise variables and then
> tweak the eigen value little bit to make your estimated VCV matrix PD.
>
> One algorithm for that may be like (if your estimated matrix is NND):
>
> Mod_VCV = Original_VCV + (Identity_Mat(n) - Original_VCV)*(Lambda/(1-Lambda)
> + a_very_small_positive_number)
>
> Lambda is the smallest eigen value for you estimated VCV matrix.
>
> HTH,
>
> Thanks and regards,
> _____________________________________________________
>
> Arun Kumar Saha, FRM
> QUANTITATIVE RISK AND HEDGE CONSULTING SPECIALIST
> Visit me at: http://in.linkedin.com/in/ArunFRM
> _____________________________________________________
>
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-- 
Enrico Schumann
Lucerne, Switzerland
http://nmof.net/