Value-at-Risk Theory and Practice

The first advanced book on value-at-risk

Chapter 2, Page 78
Exercise 13

Consider the quadratic polynomial p: 3 :

[2.93]

a. Express the polynomial in matrix form [2.91]. Make sure your matrix c is symmetric.

b. Apply the Cholesky algorithm to determine if your matrix c is positive definite.

c. Solve for the point x indicated by [2.92].

d. What is the polynomial’s value at the point x obtained in item (c)?

e. Is your solution a maximum, minimum, or saddle point?

Solution

a. Expressed in matrix form [2.91], polynomial [2.93] becomes

[s1]

where

[s2]

 

 

[s3]

 

 

a = 5

[s4]

b. Applying the Cholesky algorithm, we obtain Cholesky matrix

[s5]

We conclude that the matrix c is positive definite.

c. By [2.92]

[s6]

d. 1

e. Because the matrix c is positive definite, it is a minimum.

 

 

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