2

1 3 0�1� � 3�
� �
� =
0
� 1�
�
�
�2�
� �
�2�
�

1 2
�3 0�
�1� � 3�
� =
0
� 1�
�
�
�2�
� �
�2�
�

3
10 10

8 8

6 6

4 4

2 2

2 4 6
2 4 6
Matrix 1
0 1 -1
1 2 0

Matrix 2
1 0 2 1
0 0 1 -1
2 -1 0 2

Product
-2 1 1 -3
1 0 4 -1
 A
1 2 1 0
0 1 -1 2
1 0 0 1
2 2 1 1

Determinant of A 0
 A b
1 -2 3 1
2 4 0 3
0 2 -1 0

Determinant of A 4

A-1 x
-1 1 -3 2
0.5 -0.25 1.5 -0.25
1 -0.5 2 -0.5
A x x'Ax
1 -2 3 0.5 0.990
2 4 0 0.3
0 2 -1 0.2
Correlation Matrix
1 0.5 0.2
0.5 1 0.3
0.2 0.3 1 You will need to in
Excel add-in for this
Eigenvalues menu click add-in
Err:511 Err:511 Err:511 location of Matrix.x
Eigenvectors highlight the icon
Err:511 Err:511 Err:511 added in, it remai
Err:511 Err:511 Err:511 possible add-ins, an
it, it will be automati
Err:511 Err:511 Err:511
start Excel, just lik
Sum of Squares
Err:511 Err:511 Err:511
Normalized Eigenvectors
Err:511 Err:511 Err:511
Err:511 Err:511 Err:511
Err:511 Err:511 Err:511
Sum of Squares
Err:511 Err:511 Err:511
 You will need to install the Matrix.xla
Excel add-in for this example. In the tools
menu click add-ins, browse. Find the
location of Matrix.xla on your machine,
highlight the icon and click OK. Once
added in, it remains on your menu of
possible add-ins, and unless you de-select
it, it will be automatically loaded when you
start Excel, just like any other add-in.
Standard Deviation 1 20%
Standard Deviation 2 10%
Standard Deviation 3 15%
Correlation 12 80%
Correlation 13 50%
Correlation 23 30%

0.2 0 0
D 0 0.1 0
0 0 0.15

1 0.8 0.5
C 0.8 1 0.3
0.5 0.3 1

0.04 0.016 0.015

V 0.016 0.01 0.0045
0.015 0.0045 0.0225
Volatility 1 10%
Volatility 2 20%
Correlation 0.5
Nominal 1 (million) 2
Nominal 2 (million) 3

V 0.01 0.01
0.01 0.04

x'Vx 0.52
P&L Volatilty € 721,110
Returns Volatility 14.42%
Correlation Matrix
1 -0.9 -0.8
-0.9 1 -0.5
-0.8 -0.5 1
If you have not yet done
Eigenvalues you will need to install t
#ADDIN? #ADDIN? #ADDIN? Matrix.xla Excel add-in
Eigenvectors this example. See Examp
I.2.10 for instructions
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
Sum of Squares
#ADDIN? #ADDIN? #ADDIN?
Normalized Eigenvectors
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
Sum of Squares
#ADDIN? #ADDIN? #ADDIN?
u have not yet done so,
will need to install the
rix.xla Excel add-in for
example. See Example
2.10 for instructions
Correlation Matrix
1 0.5 0.2
0.5 1 0.3
0.2 0.3 1

Eigenvalues If you have not yet don

#ADDIN? #ADDIN? #ADDIN? you will need to instal
Eigenvectors Matrix.xla Excel add-i
#ADDIN? #ADDIN? #ADDIN? this example. See Exa
#ADDIN? #ADDIN? #ADDIN? I.2.10 for instructio
#ADDIN? #ADDIN? #ADDIN?
Sum of Squares
#ADDIN? #ADDIN? #ADDIN?
Normalized Eigenvectors (W)
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
Sum of Squares
#ADDIN? #ADDIN? #ADDIN?
Diagonal Matrix of Eigenvalues
#ADDIN? 0 0
0 #ADDIN? 0
0 0 #ADDIN?
W'
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
Spectral Decomposition
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN?
If you have not yet done so,
you will need to install the
Matrix.xla Excel add-in for
this example. See Example
I.2.10 for instructions
Original Matrix A
1 2 0 3
2 13 9 12
0 9 13 8
3 12 8 30
Eigenvalues of A
#ADDIN? #ADDIN? #ADDIN? #ADDIN?
Cholesky Matrix Q Q'Q = A?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
Eigenvalues of Q
#ADDIN? #ADDIN? #ADDIN? #ADDIN?

If you have not yet done so,

you will need to install the
Matrix.xla Excel add-in for
this example. See Example
I.2.10 for instructions
#ADDIN? #ADDIN?
#ADDIN? #ADDIN?
#ADDIN? #ADDIN?
#ADDIN? #ADDIN?
 A
1 2 0 1
2 2 2 -3
0 1 3 8
1 -1 8 -2
Eigenvalues of A
#ADDIN? #ADDIN? #ADDIN? #ADDIN?
L U
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
LU
#ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN?
 If you have not yet done so,
you will need to install the
Matrix.xla Excel add-in for
this example. See Example
I.2.10 for instructions

P
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
#ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?