The Implementation of Market Models Using VBA by Francois Goossens

Author:Francois Goossens
Language: eng
Format: epub
ISBN: 9781118961995
Publisher: Wiley
Published: 2015-02-16T00:00:00+00:00

5.1.2 The Gaussian case

Mutual dependencies in a group of assets can be summarized then by a correlation matrix, derived from the Covariance matrix

The multivariate Gaussian density function of a set of correlated variates is written:

where stands for the determinant of and

Since Monte-Carlo trials require the variates to be first generated independently, we shall build recursively a base of orthogonal or uncorrelated normalized random variables , i.e., satisfying

The vector () is mapped to () through a linear transformation:

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