hard · Quantitative Finance
Why is the Cholesky Decomposition frequently used in multivariate Monte Carlo simulations of correlated asset prices?
- It ensures that the simulated asset prices can never become negative.
- It speeds up the generation of random numbers by reducing dimensionality.
- It is used to calculate the implied volatility of a basket of options.
- It transforms independent random draws into draws with a target covariance structure.
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