pcRate: Constructing a Principal Component Rate (Risk Factor)
Description
Constructor for the
S3 class pcRate. It allows to define a principal component of rate curves risk factor. This risk factor refers
to a principal component in the decomposition of the "stetigen Zins" change \(\Delta R_{j}(t, i_{\tau})\)
for a certain horizon index \(i_{\tau}\) and a certain currency j in the
valuation function for "Fixed-Income-Assets und Versicherungsverpflichtungen" presented
in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung".
Usage
pcRate(name, currency, scale = NULL)
Arguments
name
a character value of length one. This corresponds to the name in the covariance
matrix of the marketRisk to which the principal component rate risk factor is mapped.
This means that the principal component change will be assumed to be modeled by the underlying
normal random variable corresponding to name in the covariance matrix
(potentially scaled by scale if not NULL).
currency
a character value of length one. The currency in which the underlying
rate is modelling. This refers to the currency corresponding to the index j
in the FINMA document "SST-Marktrisiko und -Aggregation Technische Beschreibung".
scale
a numeric value of length one. If not set NULL,
this defines a scaled risk factor equal to scale times
the risk factor defined by name in the covariance matrix contained in marketRisk.
By default its value is scale = NULL.
# NOT RUN {# constructing a principal component rate risk factor# (assuming "2Y_CHF" exists in marketRisk).p <- pcRate(name = "pcRate_EUR_1", currency = "EUR")
# }