20-Term Structure Page 633 Wednesday, February 4, 2004 1:33 PM
EXHIBIT 20.4
Summary of Some Popular Studies of Yield Curve Dynamics
Authors
Country (Period)
Kind of Rates
Range Factors
% of Explanation
633
Robert Litterman and José Scheinkman, “Common Factors Affecting Bond Returns,”
Journal of Fixed Income
(June 1991), pp. 54–61.
C. Kanony and M. Mokrane, “Reconstitution de la courbe des taux, analyse des fac
teurs d’évolution et couverture factorielle,”
Cahiers de la Caisse Autonome de Refi
nancement
1 (June 1992).
R.L. D’Ecclesia and S.A. Zenios, “Risk Factor Analysis and Portfolio Immunization in
the Italian Bond Market,”
Journal of Fixed Income
4, no. 2 (September 1994), pp. 51–
58.
J. Kärki and C. Reyes, “Model Relationship,”
Risk
7, no. 12 (December 1994), pp. 32–35.
J.R. Barber and M.L. Copper, “Immunization Using Principal Component Analysis,”
Journal of Portfolio Management
(Fall 1996), pp. 99–105.
A. Bühler and H. Zimmerman, “A Statistical Analysis of the T
erm Structure of Interest
Rates in Switzerland and Germany,”
Journal of Fixed Income
6, no. 3 (December
1996), pp. 55–67.
Golub, B. W., and L. M. Tilman, “Measuring Yield Curve Risk Using Principal Compo
nents Analysis, Value at Risk, and Key Rate Durations,”
Journal of Portfolio Man
agement
(Summer 1997), pp. 72–84.
I. Lekkos, “A Critique of Factor Analysis of Interest Rates,”
Journal of Derivatives
(Fall
2000), pp. 72–83.
L. Martellini and P. Priaulet,
Fixed-Income Securities: Dynamic Methods for Interest
Rate Risk Pricing and Hedging
(New York: John Wiley & Sons, 2000).
U.S. (1984–88)
Spot Zero-
6M–18Y
3
88.04/8.38/1.97
Coupon (ZC)
France (1989–90)
Spot ZC
1Y–25Y
2
93.7/6.1
Italy (1988–92)
Spot ZC
6M–7Y
3
93.91/5.49/0.42
Germ./Switz./U.S.
Spot ZC
3M–10Y
3
Total: 97/98/98
(1990–94)
U.S. (1985–91)
Spot ZC
1M–20Y
3
80.93/11.85/4.36
Germany
(1988–96)
Spot ZC
1M–10Y
3
71/18/4
Switzerland
(1988–96)
75/16/3
RiskMetrics
Spot ZC
3M–30Y
3
92.8/4.8/1.27
09/30/96)
U.S. (1984–95)
1–Year
1Y–9Y
5
56.5/17.4/9.86/8.12/4.3
Germany (1987–95)
Forward
50.6/17.3/13.5/8.8/5.8
U.K. (1987–95) Japan (1987–95) France (1995–98)
Spot ZC
63.5/6.3/7.5/8.1/5.342.8/25.5/17.1/6/4.9
1M–10Y
3
66.64/20.52/6.96
Note: M
stands for month and
Y
for year. For example, “88.04/8.38/1.97” means that the first factor explains 88.04% of the yield curve
variations, the second 8.38%, and the third 1.97%. Sometimes, we also provide the total amount by adding up these terms.Source:
Exhibit A1 in Lionel Martellini, Philippe Priaulet, and Stéphane Priaulet,
“An Empirical Analysis of the Domestic and Euro
Yield Curve Dynamics,” Chapter 24 in Frank J. Fabozzi and Moorad Choudhry (eds.),
The Handbook of European Fixed Income
Markets
(Hoboken, NJ: John Wiley & Sons, 2004).