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bingfei
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Joined: August 2nd, 2004, 8:32 pm

factor loading

November 29th, 2005, 7:06 pm

Dear All,I am looking at some fixed income literatures and found one common technique that many people use is called Factor Loading. Can anyone shed some lights on what books or papers that elaborate on this topic? Thanks in advance.
 
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Aaron
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Joined: July 23rd, 2001, 3:46 pm

factor loading

November 29th, 2005, 8:41 pm

I think you mean factor analysis, which is a social science term for principal component decomposition. The factor loadings translate data to components.For example, you might decompose the yield curve into three different factors that correspond to level, steepness and twist. Each of these moves independently, unlike, say, the 1-year and 10-year interest rates. The factor loadings for the 1-year rate might be 0.9*F1 - 1*F2 + 1*F3.
 
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KackToodles
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Joined: August 28th, 2005, 10:46 pm

factor loading

December 1st, 2005, 8:23 am

any finance book on APT would talk about factor loadings.
 
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Athletico
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Joined: January 7th, 2002, 4:17 pm

factor loading

December 1st, 2005, 2:40 pm

The attached paper from the Univ of Chicago FinMath Fixed Income course is a good illustration of what Aaron is talking about.
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StatModel03.zip
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bingfei
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Joined: August 2nd, 2004, 8:32 pm

factor loading

December 1st, 2005, 10:01 pm

Aaron, thanks. You have answered numerous questions of mine and I am indebted to you. KackToodles and Athletico, thanks. Those papers are exactly what I need to read.
Last edited by bingfei on November 30th, 2005, 11:00 pm, edited 1 time in total.
 
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Chrysss
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Joined: October 2nd, 2002, 10:42 am

factor loading

December 10th, 2006, 6:19 pm

Hallo guys,...I need literatur and especially a software for "Dynamic Factor Analysis". Do you something or someone how can help me in this matter?
 
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Aaron
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Joined: July 23rd, 2001, 3:46 pm

factor loading

December 11th, 2006, 2:53 pm

I do not recommend the technique, but a good introduction in finance is The Generalized Dynamic-Factor Model: Identification and Estimation by Forni, Hallin and Reichlin.
 
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joeyk
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Joined: October 10th, 2002, 1:40 pm

factor loading

April 11th, 2007, 7:09 am

Hi Aaron,Would you please kindly elaborate on why you do not recommend this method?Thanks,J