Explicit Solutions to Correlation Matrix Completion Problems, with an Application to Risk Management and Insurance

Georgescu, Dan I. and Higham, Nicholas J. and Peters, Gareth W. (2017) Explicit Solutions to Correlation Matrix Completion Problems, with an Application to Risk Management and Insurance. [MIMS Preprint]

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Abstract

We derive explicit solutions to the problem of completing a partially specified correlation matrix. Our results apply to several block structures for the unspecified entries that arise in insurance and risk management, where an insurance company with many lines of business is required to satisfy certain capital requirements but may have incomplete knowledge of the underlying correlation matrix. Among the many possible completions we focus on the one with maximal determinant. This has attractive properties and we argue that it is suitable for use in the insurance application. Our explicit formulas enable easy solution of practical problems and are useful for testing algorithms for the general correlation matrix completion problem.

Item Type: MIMS Preprint
Uncontrolled Keywords: Matrix completion, correlation matrix, positive definite matrix, maximal determinant, chordal graph, covariance selection, insurance, risk management.
Subjects: MSC 2010, the AMS's Mathematics Subject Classification > 15 Linear and multilinear algebra; matrix theory
MSC 2010, the AMS's Mathematics Subject Classification > 65 Numerical analysis
Depositing User: Nick Higham
Date Deposited: 13 Oct 2017
Last Modified: 08 Nov 2017 18:18
URI: http://eprints.maths.manchester.ac.uk/id/eprint/2585

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