This paper proposes a novel methodology, based on the Common Principal Component analysis, allowing one to estimate the factors driving the term structure of interest rates, in the presence of time-varying covariance structure.

The movements of domestic term structures of interest rates are commonly assumed to be driven by a small number of factors, usually obtained from a principal component analysis. In order to model simultaneously the dynamics of several domestic term structures, principal component analysis is...

In this paper, recent techniques of estimating implied information from derivatives markets are presented and applied empirically to the French derivatives market. We determine nonparametric implied volatility functions, state-price densities and historical densities from a high-frequency stock...

We entertain the possibility of pervasive factors that are not common across two (or more) groups of securities. We propose and implement a general procedure to estimate the space spanned by common and group-specific pervasive factors. In our empirical analysis, we study the factor structure of...

The term structure of interest rates is often summarized using a handful of yield factors that capture shifts in the shape of the yield curve. In this paper, we develop a comprehensive model for volatility dynamics in the level, slope, and curvature of the yield curve that simultaneously...