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Importance of PCA
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<blockquote data-quote="Ken Abbott" data-source="post: 83845" data-attributes="member: 2940"><p>You can use it as a very fast way of accurately estimating the p&L of a large, complex rates portfolio. It also informs the hedging process, e.g. if the 1st PC covers 95% of the total variance, a simple duration-weighted hedge should be fine.</p><p> </p><p>BTW: People seem to like <span style="font-size: 17px"><span style="font-family: 'Times'"><em>A Tutorial on Principal Components Analysi</em>s by Lindsay I Smith.</span></span></p></blockquote><p></p>
[QUOTE="Ken Abbott, post: 83845, member: 2940"] You can use it as a very fast way of accurately estimating the p&L of a large, complex rates portfolio. It also informs the hedging process, e.g. if the 1st PC covers 95% of the total variance, a simple duration-weighted hedge should be fine. BTW: People seem to like [SIZE=17px][FONT=Times][I]A Tutorial on Principal Components Analysi[/I]s by Lindsay I Smith.[/FONT][/SIZE] [/QUOTE]
Importance of PCA