Level-Slope-Curvature - Fact or Artefact?

Roger Lord () and Antoon Pelsser
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Roger Lord: Erasmus Universiteit Rotterdam, and Rabobank International, Utrecht.

No 05-083/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: 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.

This discussion paper resulted in a publication in Applied Mathematical Finance , 2007, 14(2), 105-30.

Keywords: Principal components analysis; correlation matrix; total positivity; oscillation matrix; Schoenmakers-Coffey matrix (search for similar items in EconPapers)
JEL-codes: C50 C60 G10 (search for similar items in EconPapers)
Date: 2005-09-08
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Related works:
Journal Article: Level-Slope-Curvature - Fact or Artefact? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20050083

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