AppliedMultiple choice
You run PCA on yield-curve changes across maturities. What is the first component?
- AA parallel shift – the level
- BThe steepening and flattening of the curve, that is, the slope
- CThe bulge in the middle of the curve, or curvature
- DIdiosyncratic noise specific to individual tenors
The worked solution is in Premium
The answer, the full working and the one idea to take away – for this and all 1,322 questions in the bank. Answer it in practice and your working is marked, with a known mistake named when you make one.
Learn the method
PCA, covariance matrices and what an eigenvalue is telling you
More linear algebra questions
- A covariance matrix has eigenvalues 6, 2, 1 and 1.Foundation
- Keeping the big singular values, part 1 of 3Foundation
- A matrix has largest singular value 100 and smallest 0.5. What is its condition number?Applied
- Keeping the big singular values, part 2 of 3Applied
- You estimate a 500 × 500 sample covariance matrix from 250 days of demeaned returns.Advanced
- You run PCA on raw features measured in wildly different units, and one feature…Advanced