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Empirical Finance: Notes: Federico M. Bandi Johns Hopkins University

This document provides a quick review of important matrix concepts in empirical finance, including: - Identity, transpose, trace, and inverse of matrices - Determinants, eigenvalues/eigenvectors, and Jordan decompositions - Orthogonal, idempotent, and positive semidefinite matrices It defines these terms and highlights some of their key properties.

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Sylvain Blanchard
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94 views3 pages

Empirical Finance: Notes: Federico M. Bandi Johns Hopkins University

This document provides a quick review of important matrix concepts in empirical finance, including: - Identity, transpose, trace, and inverse of matrices - Determinants, eigenvalues/eigenvectors, and Jordan decompositions - Orthogonal, idempotent, and positive semidefinite matrices It defines these terms and highlights some of their key properties.

Uploaded by

Sylvain Blanchard
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Empirical Finance: notes

Federico M. Bandi
Johns Hopkins University


c 2020 Federico M. Bandi
All Rights Reserved
Chapter 0 Empirical finance

Quick review of important facts about matrices

• Identity matrix. A square matrix with ones on the diagonal and zeros everywhere
else.

• Transposition. Let aij denote the row i, column j element of a matrix A : A = [aij ].
The transpose of A, denoted by A0 , is given by A0 = [aji ].

• Important properties:

(AB)0 = B 0 A0
(A + B)0 = A0 + B 0

0
• Symmetric matrices. A square matrix such that A = A is said to be symmetric.

• Trace. The trace of a square matrix is the sum of the elements along the diagonal.

• Important property:
tr(AB) = tr(BA)

• Determinant. The determinant of a 2 × 2 square matrix A, denoted by |A|, is the


scalar
|A| = a11 a22 − a12 a21

• One could of course define determinants for more general matrices than a simple
2 × 2 square matrix.

• Important properties:

1. The determinant of the identity matrix is 1.

2. For an n × n matrix A,
|σA| = σ n |A|

1
Chapter 0 Empirical finance

• Inverse. If the determinant of a square matrix exists, then its inverse exists and is
such that A × A−1 = I (the identity matrix). In the bi-variate case:
" #
1 a22 −a12
A−1 = .
a11 a22 − a12 a21 −a21 a11

• Eigenvalues and eigenvectors.

• Suppose that an n × n matrix A, a nonzero n × 1 vector x, and a scalar λ are related


by
Ax = λx.

• Then, x is called the eigenvector of A and λ is called the eigenvalue of A.

• Jordan decomposition. Every symmetric matrix A can be written as BΛB 0 , where


Λ is a matrix which contains the eigenvalues of A on the diagonal (and zeros ev-
erywhere else) and B is an orthogonal matrix consisting of the eigenvectors of A.

• A square orthogonal matrix is such that BB 0 = I and B −1 = B 0 .

• Idempotent matrices. A square matrix A such that AA = A is called idempotent.

• Important property: The eigenvalues of an idempotent matrix are either 1 or zero.

• Positive semidefinite. An n × n real symmetric matrix A is said to be positive


semidefinite if, for any real n × 1 vector x, x0 Ax ≥ 0.

• Important property: The eigenvalues of a positive semidefinite matrix are either


zero or positive.

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