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Application of Principal Component Analysis in Chinese Sovereign Bond Market and Principal Component-Based Fixed Income Immunization

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  • Lim Tze Yee
  • Tony She
  • Kezia Irene

Abstract

This paper analyses the Chinese Sovereign bond yield to find out the principal factors affecting the term structure of interest rate changes. We apply Principal Component Analysis (PCA) on our data consisting of the Chinese Sovereign bond from January 2002 till May 2018 with the different yield to maturity. Then we will discuss the multi-factor immunization model (method on hedging market risk) on a bond portfolio.

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  • Lim Tze Yee & Tony She & Kezia Irene, 2019. "Application of Principal Component Analysis in Chinese Sovereign Bond Market and Principal Component-Based Fixed Income Immunization," Papers 1911.07288, arXiv.org.
    • Handle: RePEc:arx:papers:1911.07288
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    File URL: http://arxiv.org/pdf/1911.07288
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    1. Nath, Golaka, 2012. "Estimating term structure changes using principal component analysis in Indian sovereign bond market," MPRA Paper 39229, University Library of Munich, Germany.
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