Volume II, page 12. Omega?

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izzahmu
Posts: 6
Joined: Thu Sep 05, 2013 5:59 pm

Volume II, page 12. Omega?

Postby izzahmu » Sat Sep 14, 2013 6:41 pm

We have an Omega matrix at the bottom of page 12. vol.II for annual covariance matrix that I could not recreate.

Could any one please tell me how we came up with the numbers in Omega bottom of page 12?

izzahmu
Posts: 6
Joined: Thu Sep 05, 2013 5:59 pm

Re: Volume II, page 12. Omega?

Postby izzahmu » Sun Sep 15, 2013 12:44 pm

I got the answer to my question, I am providing it here just in case someone runs into the same problem.

The answer is in vol.I pages 55-56

Most of my confusion was because I squared volatility to get to variance and used that on the diagonal, I then applying the CDC multiplication of matrixes. Which was resulting in a different answer.
I guess it has been a long time since I read through the beginning of the first volume, and when I read it I was focused on the math not the finance, so the financial concepts didn't stick anyway back then.

I also thought Omega was different from the V matrix when in fact they are the same. Omega is only a special name for a special case.


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