Single-factor interest rate models with constant coefficients are not consistent with arbitrary initial term structures. An extension which allows both arbitrary initial term structure and analytical tractability has been provided only in the Gaussian case. In this paper, within the context of...

A method is proposed to compute a time-varying correlation matrix between asset prices. The method has a natural geometric interpretation in terms of dynamic principal components analysis. The paper illustrates, via Monte Carlo experiments and data analysis, the potential of the method in...