Inference for Model Misspecification in Interest Rate Term Structure using Functional Principal Component Analysis
利用函数主成分分析检验利率期限结构模型的误设
Level, slope, and curvature are three commonly-believed principal components in interest rate term structure and are thus widely used in modeling. This paper characterizes the heterogeneity of how misspecified such models are through time. Presenting the orthonormal basis in the Nelson-Siegel model interpretable as the three factors, we design two nonparametric tests for whether the basis is equivalent to the data-driven functional principal component basis underlying the…