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Looking to feed PCA an implied variance covariance matrix of swap rates instead of historical one.

Taking advantage of available swaption and capfloor implied volatility surfaces, any suggestions on how to get an implied variance covariance matrix for this purpose?

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  • $\begingroup$ Options on dual assets don't exist, therefore, it would be better to use historical correlations with the IV surfaces in a hybrid. Try to backtest the covariance matrix to see if it works. $\endgroup$
    – KaiSqDist
    Commented Oct 30 at 19:00

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