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dc.contributor.authorReiswich, Dimitrien_US
dc.contributor.authorTompkins, Roberten_US
dc.date.accessioned2010-09-09en_US
dc.date.accessioned2010-09-24T09:04:14Z-
dc.date.available2010-09-24T09:04:14Z-
dc.date.issued2009en_US
dc.identifier.urihttp://hdl.handle.net/10419/40185-
dc.description.abstractPrincipal Component Analysis (PCA) is a common procedure for the analysis of financial market data, such as implied volatility smiles or interest rate curves. Recently, Pelsser and Lord [11] raised the question whether PCA results may not be 'facts but artefacts'. We extend this line of research by considering an alternative matrix structure which is consistent with foreign exchange option markets. For this matrix structure, PCA effects which are interpreted as shift, skew and curvature can be generated from unstructured random processes. Furthermore, we find that even if a structured system exists, PCA may not be able to distinguish between these three effects. The contribution of the factors explaining the variance in the original system are incorrect. Finally, for a special case, we provide an analytic correction that recovers correct factor variances from those incorrectly estimated by PCA.en_US
dc.language.isoengen_US
dc.publisherFrankfurt School of Finance & Management Frankfurt, M.en_US
dc.relation.ispartofseriesCPQF Working Paper Series 19en_US
dc.subject.ddc330en_US
dc.subject.keywordPrincipal Component Analysisen_US
dc.subject.keywordPCAen_US
dc.subject.keywordLevelen_US
dc.subject.keywordSlopeen_US
dc.subject.keywordCurvatureen_US
dc.subject.keywordTwisten_US
dc.subject.keywordBisymmetric Matricesen_US
dc.subject.keywordCentro-symmetric Matricesen_US
dc.subject.stwFinanzmarkten_US
dc.subject.stwZeitreihenanalyseen_US
dc.subject.stwHauptkomponentenanalyseen_US
dc.subject.stwVarianzanalyseen_US
dc.subject.stwKorrelationen_US
dc.subject.stwDevisenoptionsgeschäften_US
dc.subject.stwWechselkursen_US
dc.subject.stwVolatilitäten_US
dc.subject.stwTheorieen_US
dc.titlePotential PCA interpretation problems for volatility smile dynamicsen_US
dc.typeWorking Paperen_US
dc.identifier.ppn605238634en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
dc.identifier.repecRePEc:zbw:cpqfwp:19-
Appears in Collections:CPQF Working Paper Series, Frankfurt School of Finance and Management

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