Covariance Matrix Estimation for Interest-Rate Risk Modeling via Smooth and Monotone Regularization.

Estimating covariance matrices in high-dimensional settings is a challenging problem central to modern finance. The sample covariance matrix is well-known to give poor estimates in high dimensions with insufficient samples, and may cause severe risk underestimates of optimized portfolios in the Markowitz framework. In order to provide useful estimates in this regime, a variety of improved covarian...