Principal Component Analysis (PCA) Financial Glossary

What is it? A mathematical tool used to reduce the number of variables while retaining the original variability of the data The first principal component accounts for as much of the variability in the data as possible, and each succeeding component accounts for as much of the remaining variability as possible. In interest rate risk analysis, PCA is applied to define non-parallel yield curve sifts to model. The number of variables is equal to the number of points on the yield curve, the first principal component is the rate level, the second is the twist or rotation of the yield curve around a pivot point and the third is the change in curvature or bow in the yield curve.

Finance Term Definition Added By: Ryan

The Principal Component Analysis (PCA) definition has been viewed 5763 Time(s)!

Send To Friends!

If you'd like to send the Principal Component Analysis (PCA) definition to yourself or to your friends/colleagues, just enter the e-mail addresses in the boxes below -

We hope you now understand the meaning of Principal Component Analysis (PCA). If you need any more information on this term, please don't hesitate to contact us.

Other Similar Finance Terms:

Financial Term Lockin period is The time period after an IPO when the lead underwriter restricts insiders at the newly public company from selling their shares. Usually lasts 180 days.

Financial Term Disability Insurance is Insurance that replaces your income if youre unable to work for an extended period due to illness or injury.

Financial Term Indexation is A method by which payments or benefits go up or down in line with an index of prices or earnings.

Financial Term Municipal Bond is A bond issued by a state or a political subdivision, such as a county, city, town, or village. The term also designates bonds issued by state agencies and authorities. Interest payments from municipal bonds are generally free from federal income taxation.

Financial Term Prudential System is A system introduced from April 2004 which allows local authorities to determine how much long-term borrowing it can afford to undertake to fund capital expenditure. This system replaced the previous complex regulatory framework of capital controls with a system based on self-regulation by local authorities. The system is enshrined in the Prudential Code.