I've often come across terms like "PCA weighted" or "PCA neutral" interest rate swap butterflies. How does one work out the notional amounts (or durations) for this kind of structure? I suppose one has to do a PCA on the daily changes in swap rates, to obtain eigenvectors, eigenvalues, principal components, etc. Then what?Thanks in advance.
Last edited by bats66
on June 25th, 2007, 10:00 pm, edited 1 time in total.