PCA Weighted Swap Butterflies
Posted: June 26th, 2007, 3:35 am
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.