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...rtant: We would draw your attention to the notices at the bottom of this e-mail, particularly before opening and reviewing any file attachment(s). ************************************************************ Martin, Thank you for letting us know about posdefify. It does do exactly what the Rebonato paper recommended and gives the same result as our code, but it will be much better behaved in the wild than ours will. BTW Troels Ring [tring at gvdnet.dk] found the Rebonato paper at http://www.quarchome.com/correlationmatrix.pdf Thank you Troels. Best regards, Herb Herbert G. Desson, ACAS,...

...************************ Here is some code we have used. a<-array(c(1,.9,.7,.9,1,.3,.7,.3,1),dim=c(3,3)) a s<-eigen(a)$vectors l<-diag(eigen(a)$values) l[l<0]<-0 b<-s%*%sqrt(l) for(i in 1:nrow(b)){b[i,]<-b[i,]/sqrt(sum(b[i,]^2))} ap<-b%*%t(b) ap It is based on a paper by Rebonato etal that formerly was at www.rebonato.com/correlationmatrix.pdf. Unfortunately the website has disappeared. Best regards, Herb Herbert G. Desson, ACAS, MAAA Actuary JLT Risk Solutions 6 Crutched Friars London EC3N 2PH phone: +44 (0)20 7528 4702 fax: +44 (0)20 7558 3785 >Message:...