The covariance sign of transformed random variables with applications to economics and finance

Martín Egozcue, Luis Fuentes García, Wing Keung WONG, Riardas Zitikis*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    15 Citations (Scopus)


    A number of problems in economics, finance and insurance rely on determining the sign of the covariance of two transformations of a random variable. The classical Chebyshev's inequality offers a powerful tool for solving the problem, but it assumes that the transformations are monotonic, which is not always the case in applications. For this reason, in the present paper, we establish new results for determining the covariance sign and provide further insights into the area. Unlike many previous works, our method of analysis, which is probabilistic in its nature, does not rely on the classical Höffding's representation of the covariance or on any of its numerous extensions and generalizations. We motivate our research with several problems arising in economics, finance and insurance.

    Original languageEnglish
    Pages (from-to)291-300
    Number of pages10
    JournalIMA Journal of Management Mathematics
    Issue number3
    Publication statusPublished - Jul 2011

    Scopus Subject Areas

    • Management Information Systems
    • Modelling and Simulation
    • Economics, Econometrics and Finance(all)
    • Strategy and Management
    • Management Science and Operations Research
    • Applied Mathematics

    User-Defined Keywords

    • Chebyshev's inequality
    • covariance inequality
    • decision under risk


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