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For a wide class of measures, the multifractal spectrum is shown to exist iff an appropriate large deviations principle holds, in which case the spectrum is directly obtained from the corresponding rate function. A large deviations tool, enabling the use of the Gärtner-Ellis theorem for the...
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Litterman and Scheinkman (1991) show that a three factor PCA model of the term structure fits the data in a remarkable way and is useful for hedging. However, this model is not arbitrage free under the assumption that markets are frictionless. That is, there are zero cost portfolios with...
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Randomness in portfolios of options and their common underlying originates from two major sources of uncertainty: the price of the underlying and the implied volatility smile. Within the subset of portfolios whose unique source of uncertainty is the volatility smile, we derive an explicit...
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It has been indicated by Litterman and Scheinkman (1991) that the term structure of interest rates is reliably modeled by an affine three factor model attained by principal component analysis. Such a model is inconsistent with no arbitrage: it allows portfolios with zero instantaneous variance...
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It has been indicated by Litterman and Scheinkman (1991) that the term structure of interest rates is reliably modeled by an affine three factor model attained by principal component analysis. Such a model is inconsistent with no-arbitrage. In this paper Reisman and Zohar derive an explicit...
Persistent link: https://www.econbiz.de/10012785039
We show the existence of significant short-term momentum in US treasury yields. This is achieved by first applying principal component analysis (PCA) to the term structure, and then modeling the two leading factors as ARIMA processes. While the improvement in the root mean squared error (RMSE)...
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