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This is from Jorion 5th edition:
Q. Let N be n x 1 vector of independent draws from a std normal distribution, and let V be a covariance matrix of market time-series data. Then,if L is a diagonal matrix of eigen values of V,E is a matrix of the eight vectors of V and C’C is the cholesky factorization of V, which of the following would generate a normally distributed random vector with mean zero and covariance matrix V to be used in a Monte Carlo simulation?
a. NC’CN’
b. NC’
c. E’LE
d. Cannot be determined from data given
Answer
In the notation of the text,N is the vector of i.i.d random variables n and C’C=TT’. The transformed variable is Tn or C’N or its transpose.
David,
This question seemed very tough to me, Can we expect this type of questions in 2010 L1.
Please explain ,how to come to answer as I didn’t get any of it. Please.
Q. Let N be n x 1 vector of independent draws from a std normal distribution, and let V be a covariance matrix of market time-series data. Then,if L is a diagonal matrix of eigen values of V,E is a matrix of the eight vectors of V and C’C is the cholesky factorization of V, which of the following would generate a normally distributed random vector with mean zero and covariance matrix V to be used in a Monte Carlo simulation?
a. NC’CN’
b. NC’
c. E’LE
d. Cannot be determined from data given
Answer
In the notation of the text,N is the vector of i.i.d random variables n and C’C=TT’. The transformed variable is Tn or C’N or its transpose.
David,
This question seemed very tough to me, Can we expect this type of questions in 2010 L1.
Please explain ,how to come to answer as I didn’t get any of it. Please.
