Bouev, Maxim; Manaev, Ilia; Minabutdinov, Aleksei - Department of Economics, European University at St. … - 2013
We consider the problem of finding a valid covariance matrix in the FX market given an initial non-PSD estimate of such a matrix. The standard no-arbitrage assumption implies additional linear constraints on such matrices, which automatically makes them singular. As a result, one cannot just...