Real World Examples of Singular Matrices in Finance

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Discussion Overview

The discussion revolves around identifying real-world examples of singular matrices, particularly in the context of finance. Participants explore the occurrence of singular and ill-conditioned matrices, their implications, and seek specific financial applications where these concepts manifest.

Discussion Character

  • Exploratory, Homework-related, Technical explanation

Main Points Raised

  • One participant requests assistance in finding real-world examples of singular matrices in finance, noting that many problems yield singular matrices that are not invertible.
  • Another participant suggests that singular matrices are rare in real-world applications, emphasizing the prevalence of badly conditioned matrices, which have determinants close to zero.
  • A participant expresses interest in ill-conditioned matrices and seeks specific financial applications where such matrices arise, particularly those with large condition numbers.
  • It is noted that the singularity or ill-conditioning of a matrix is influenced by the values of its elements, implying that any application could potentially yield such matrices depending on the data used.

Areas of Agreement / Disagreement

Participants do not reach a consensus on specific examples of singular matrices in finance. There is acknowledgment of the rarity of singular matrices and the commonality of ill-conditioned matrices, but no agreement on particular applications.

Contextual Notes

The discussion highlights the distinction between singular and ill-conditioned matrices, but does not resolve the implications of these differences in financial contexts. The lack of specific examples remains a limitation.

calli
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Homework Statement



Hi, no variables, eqns or any of that here:) I was hoping some of you brilliant people could help me in finding some real world examples of where singular matrices occur. I do know that most real world problems yield matrices that are singular and therefore not invertible. We can use a generalized inverse on these problems, but I am finding it difficult to find some real world examples of this, specifically in the field of finance.

Homework Equations





The Attempt at a Solution

 
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In real world applications singular matrices occur very seldom, since the elements are real numbers.
What is common is badly conditioned matrices: matrices whose determinant is not zero, but is very close to. In this case, small fluctuations in any parameter yields enormous variations in the result.
 
singularity

hey thanks so much.

I have been looking at ill-conditioned matrices. I was hoping to find some specific financial application that yields ill-conditioned matrices. (i.e. there condition number is very large)
 
calli said:
hey thanks so much.

I have been looking at ill-conditioned matrices. I was hoping to find some specific financial application that yields ill-conditioned matrices. (i.e. there condition number is very large)

What makes a matrix singular or ill-conditioned is the value of the elements. Any application can have those types of matrices, depending on the data.
 

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