Level-Slope-Curvature - Fact or Artefact?
2005-09-06
Research Paper
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The first three factors resulting from a principal components analysis of term structure data are in the literature typically interpreted as driving the level, slope and curvature of the term structure. Using slight generalisations of theorems from total positivity, we present sufficient conditions under which level, slope and curvature are present. These conditions have the nice interpretation of restricting the level, slope and curvature of the correlation surface. It is proven that the Schoenmakers-Coffey correlation matrix also brings along such factors. Finally, we formulate and corroborate our conjecture that the order present in correlation matrices causes slope.
Keywords
- correlation matrix
- principal components analysis
- oscillation matrix
- total positivity
- Schoenmakers-Coffey matrix
Classifications using
Journal of Economic Literature (JEL) Classification System
- G10 : General Financial Markets: General
- C60 : Mathematical Methods and Programming: General
- C50 : Econometric Modeling: General
Automatically Extracted Terms
- matrix
- correlation
- correlation matrix
- matrice
- slope
- curvature
- level
- condition
- theorem
- factor
- structure
- property
- eigenvector
- term structure
- order
- correlation matrices
- covariance matrix
- covariance
- change
- order k
