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On dynamic foward rate modeling and principal component analysis

Bermin, Hans-Peter LU (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:
author
organization
publishing date
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
pages
20 pages
publisher
World Scientific
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
2017-04-02 04:34:25
@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.},
  articleno    = {1450029},
  author       = {Bermin, Hans-Peter},
  issn         = {0219-0249},
  keyword      = {interest rates,yield curve,term structure,forward rates,principal component analysis,Karhunen–Loève expansion},
  language     = {eng},
  month        = {07},
  number       = {5},
  pages        = {20},
  publisher    = {World Scientific},
  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},
  volume       = {17},
  year         = {2014},
}