@inproceedings{0955ebcc8c8f40e0b8047e8cd1cd5959,
title = "On toeplitz approximation to empirical correlation matrix of financial asset returns",
abstract = "We present a Toeplitz approximation to symmetric empirical correlation matrix of asset returns by auto-regressive order one, AR(1), signal source modeling. AR(1) approximation provides an analytical framework where the corresponding eigenvalues and eigenvectors are defined in closed forms. Furthermore, we show discrete cosine transform (DCT) offers comparable performance to Karhunen-Loeve transform (KLT) for decomposition of empirical correlation matrix of a given portfolio where the first is significantly more efficient to implement. It is concluded that the proposed framework has a potential use for noise filtering and risk management in quantitative finance.",
keywords = "AR(1) model, Discrete cosine transform, Empirical correlation matrix, Karhunen-Loeve transform, Risk management",
author = "Akansu, \{Ali N.\} and Torun, \{Mustafa U.\}",
year = "2012",
doi = "10.1109/CISS.2012.6310806",
language = "English (US)",
isbn = "9781467331401",
series = "2012 46th Annual Conference on Information Sciences and Systems, CISS 2012",
booktitle = "2012 46th Annual Conference on Information Sciences and Systems, CISS 2012",
note = "2012 46th Annual Conference on Information Sciences and Systems, CISS 2012 ; Conference date: 21-03-2012 Through 23-03-2012",
}