On dynamic foward rate modeling and principal component analysis
(2014) In International Journal of Theoretical and Applied Finance 17(5).- Abstract
- In this paper, we show how to construct dynamic forward rate models in terms of exogenously specified eigenfunctions (or factor loadings). We also show how to link forward rate models with different number of driving Brownian motions to each other in a way consistent with the implied eigenfunctions. Finally, we discuss how to best parameterize the models in the sense of maximizing the number of free parameters for a given set of eigenfunctions.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/7ac1802d-7007-4a93-91b5-61a175020d9a
- author
- Bermin, Hans-Peter LU
- organization
- publishing date
- 2014-07-29
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- interest rates, yield curve, term structure, forward rates, principal component analysis, Karhunen–Loève expansion
- in
- International Journal of Theoretical and Applied Finance
- volume
- 17
- issue
- 5
- article number
- 1450029
- pages
- 20 pages
- publisher
- World Scientific Publishing
- external identifiers
-
- scopus:84905229801
- ISSN
- 0219-0249
- DOI
- 10.1142/S0219024914500290
- language
- English
- LU publication?
- yes
- id
- 7ac1802d-7007-4a93-91b5-61a175020d9a
- date added to LUP
- 2017-01-21 17:58:14
- date last changed
- 2022-01-30 17:16:34
@article{7ac1802d-7007-4a93-91b5-61a175020d9a, abstract = {{In this paper, we show how to construct dynamic forward rate models in terms of exogenously specified eigenfunctions (or factor loadings). We also show how to link forward rate models with different number of driving Brownian motions to each other in a way consistent with the implied eigenfunctions. Finally, we discuss how to best parameterize the models in the sense of maximizing the number of free parameters for a given set of eigenfunctions.}}, author = {{Bermin, Hans-Peter}}, issn = {{0219-0249}}, keywords = {{interest rates; yield curve; term structure; forward rates; principal component analysis; Karhunen–Loève expansion}}, language = {{eng}}, month = {{07}}, number = {{5}}, publisher = {{World Scientific Publishing}}, series = {{International Journal of Theoretical and Applied Finance}}, title = {{On dynamic foward rate modeling and principal component analysis}}, url = {{http://dx.doi.org/10.1142/S0219024914500290}}, doi = {{10.1142/S0219024914500290}}, volume = {{17}}, year = {{2014}}, }