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dc.contributor.authorReiswich, Dimitrien
dc.contributor.authorTompkins, Roberten
dc.date.accessioned2010-09-09-
dc.date.accessioned2010-09-24T09:04:14Z-
dc.date.available2010-09-24T09:04:14Z-
dc.date.issued2009-
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
dc.language.isoengen
dc.publisher|aFrankfurt School of Finance & Management, Centre for Practical Quantitative Finance (CPQF) |cFrankfurt a. M.en
dc.relation.ispartofseries|aCPQF Working Paper Series |x19en
dc.subject.ddc330en
dc.subject.keywordPrincipal Component Analysisen
dc.subject.keywordPCAen
dc.subject.keywordLevelen
dc.subject.keywordSlopeen
dc.subject.keywordCurvatureen
dc.subject.keywordTwisten
dc.subject.keywordBisymmetric Matricesen
dc.subject.keywordCentro-symmetric Matricesen
dc.subject.stwFinanzmarkten
dc.subject.stwZeitreihenanalyseen
dc.subject.stwHauptkomponentenanalyseen
dc.subject.stwVarianzanalyseen
dc.subject.stwKorrelationen
dc.subject.stwDevisenoptionsgeschäften
dc.subject.stwWechselkursen
dc.subject.stwVolatilitäten
dc.subject.stwTheorieen
dc.titlePotential PCA interpretation problems for volatility smile dynamics-
dc.typeWorking Paperen
dc.identifier.ppn830008233en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:cpqfwp:19en

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