Empirical analysis of the US swap curve

This paper provides an empirical analysis of the US swap rate curve using principal components analysis (PCA) to identify the factors which explain the variation in the data. We also investigate the forecasting performance of different econometric models for individual maturities across the curve using daily data over the period 1998 to 2011. The PCA analysis indicates that the first two factors explain approximately 99.76% of the cumulative variation in the sample. We also find that a continuous time modelling approach has a satisfactory performance across the curve based on the RMSE