Mathematical Principles and Quantitative Finance · 09. novembre 2023

An SPD matrix, with only non-negative eigenvalues, represents systems free from "negative energy" and ensures non-negative outcomes in various applications, including finance. It guarantees that any real vector, when applied to a quadratic form like portfolio variance, yields a non-negative result. SPD matrices are key in constructing risk models, pricing options, and in stochastic calculus, providing a reliable framework for financial analysis, optimization, and derivatives pricing.