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Questions tagged [principal-components]

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Can PCA be used to transform a ladder of interest rate risk?

The context For traders/market makers on interest rate swaps desks, it is essential to have a model that transforms risk from its most complex representation (i.e. a ladder of every tenor) into a less ...
quanty's user avatar
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PO (Principal only) mortgage bonds - Does Price or yield go up when interest rates go down?

I'm reading a book that states that PO mortgage bonds go up when interest rates go down as the prepayment happens faster. I'm confused whether prices go up on PO bonds or yields go up?
nsivakr's user avatar
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PCA on portfolio depending on multiple time series

There is extensive documentation about PCA on specific time series (for example the UK yield curve). When you have a portfolio which only depends on the change of the UK yield curve then a PCA on the ...
Oamriotn's user avatar
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First Principal Component Large Volatility

I am conducting PCA on several return series of funds and am finding that when I look at the first principal component the values are huge and this the volatility is also enormous relative to the ...
Simon Nicholls's user avatar
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1 answer
120 views

How do you optimize an all equity portfolio while getting around the multicollinearity issue?

I am trying to optimize a portfolio of domestic and international equity funds. However being that they are very highly correlated it doesn’t really help. Is there a way to optimize and find an ...
Christopher H's user avatar
1 vote
1 answer
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Difference between par value and principal?

Could someone explain what is the difference between principal and par value in terms of a bond? Thanks!
quant_pandishpan's user avatar
1 vote
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Predicting stock returns using principal components of macroeconomic variables

I'm trying to detect return predictability by regressing stock returns on the first couple of principal components of a set of macroeconomic variables. I'm doing this for different stock styles such ...
Louis's user avatar
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2 answers
9k views

Principal Component Analysis of yield curve change

Following pictures are the Principal Component Analysis for the yield curve change from https://www.coursera.org/learn/interest-rate-models/lecture/ZHMM6/principal-...
A.Oreo's user avatar
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PCA and constructing an index

Given a set of correlated securities and their corresponding closing prices, I am looking for a way to construct an index of these securities. When applying PCA to obtain the principal components, ...
WJA's user avatar
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1 answer
2k views

Applications of PCA to yield curve analysis

One of the applications of Principal Component Analysis in Finance is to analyse the shape of the yield curve. But what conclusions can be drawn exactly from performing this exercise? Does it help us ...
Iliana's user avatar
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1 vote
1 answer
229 views

Low-rank approximation techniques for portfolio optimisation

I am trying to understand how low-rank approximation techniques such as PCA, factor analysis, total least squares, orthogonal regression, etc could be used in portfolio optimisation. Say I have a ...
Chris B's user avatar
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2 answers
619 views

Principal components in treasuries: spot vs futures

I'm looking to use first few principal components of the US treasury yields for trading, and have choice of using either the data for treasuries themselves, or for the corresponding futures contracts. ...
LazyCat's user avatar
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What does continuously payable annuity mean?

I am preparing for F< exam but I am unable to understand the meaning of continuously payable annuity. What does it mean? An example would be great.
RajSharma's user avatar
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1 answer
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Regression model syntax

I'm following the methodology outlined in Developing High-Frequency Equities Trading Models. On page 27, the author outlines an OLS regression model to obtain beta coefficients. The model is defined ...
strimp099's user avatar
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1 answer
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Daily principal payments, accumulated on yearly basis in excel

I am doing something seemingly quite easy: Prinipal calcuation of a loan. I need to calculate daily principal payments and accumulate it on a yearly basis. So my current implementation look like ...
Carol.Kar's user avatar
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2 votes
1 answer
4k views

Principal Component Analysis and Yield Curves

I've been tasked with researching trading strategies relating PCA to trading fixed income futures instruments. Apparently PCA is frequently used in this area. I'm just looking for some references for ...
user13405's user avatar
1 vote
1 answer
696 views

How can I use PCA to determine spread ratios for multiple legs?

I would like to generalize Paul Teetor's A Better Hedge Ratio, which uses prcomp() to determine a ratio between two legs. I am hoping to extend this to multiple legs, but am having trouble finding ...
Stu's user avatar
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1 answer
176 views

Inferring signals in absence of sign of principal components (PCA)?

PCA seems to be very popular in dimension reduction applications and for extracting the top PCs which explain the data. One such application in futures is on the term structure to obtain the level, ...
Mindstorm's user avatar
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2 votes
2 answers
2k views

Partial Least Squares Discriminant Analysis

Could anyone point me to detailed literature about "Partial Least Squares Discriminant Analysis"? Intuition, methodology and examples.. Thanks,
Mayou's user avatar
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