ABSTRACT

This seminar introduces the problem of correlation matrix completion in an insurance context, and shows how to derive explicit solutions to completing a partially specified correlation matrix. The results apply to several block structures for the unspecified entries that arise in insurance and risk management, where an insurance company with many lines of business is required to satisfy certain capital requirements but may have incomplete knowledge of the underlying correlation matrix. Among the many possible completions, the focus is on the one with maximal determinant because this has attractive properties. The explicit formulas enable easy solution of practical problems and are useful for testing algorithms for the general correlation matrix completion problem.