Following pictures are the
Principal Component Analysis for the yield curve change from
Why is the first loading(factor) exactly the level; the second loading exactly the slope; etc?
And we can see John Hull's book
Options, Futures and Other Derivatives 9th
page 514. It's totally converse to the above statement. It knows the
loading of each factor and maturity first, then use the variance of
factor score to determine which factor is most important.
In John Hull's version actually I don't know how to directly observe the loading of a factor for a specific yield, e.g the
slope factor of 2-year yield?
So I really confuse here, which one is right in the real practice?