Principal component and second generation wavelet analysis of Treasury yield curve evolution

Prices of U.S. Treasury securities vary over time and across maturities. When the market in Treasurys is sufficiently complete and frictionless, these prices may be modeled by a function time and maturity. A cross-section of this function for time held fixed is called the yield curve; the aggregate of these sections is the evolution of the yield curve. This dissertation studies aspects of this evolution. ^ There are two complementary approaches to the study of yield curve evolution here. The first is principal components analysis; the second is wavelet analysis. In both approaches both the time and maturity variables are discretized. In principal components analysis the vectors of yield curve shifts are viewed as observations of a multivariate normal distribution. The resulting covariance matrix is diagonalized; the resulting eigenvalues and eigenvectors (the principal components) are used to draw inferences about the yield curve evolution. ^ In wavelet analysis, the vectors of shifts are resolved into hierarchies of localized fundamental shifts (wavelets) that leave specified global properties invariant (average change and duration change). The hierarchies relate to the degree of localization with movements restricted to a single maturity at the base and general movements at the apex. Second generation wavelet techniques allow better adaptation of the model to economic observables. Statistically, the wavelet approach is inherently nonparametric while the wavelets themselves are better adapted to describing a complete market. ^ Principal components analysis provides information on the dimension of the yield curve process. While there is no clear demarkation between operative factors and noise, the top six principal components pick up 99% of total interest rate variation 95% of the time. An economically justified basis of this process is hard to find; for example a simple linear model will not suffice for the first principal component and the shape of this component is nonstationary. ^ Wavelet analysis works more directly with yield curve observations than principal components analysis. In fact the complete process from bond data to multiresolution is presented, including the dedicated Perl programs and the details of the portfolio metrics and specially adapted wavelet construction. The result is more robust statistics which provide balance to the more fragile principal components analysis. ^

Exotic meson decay widths using lattice quantum chromodynamics

Most experiments in particle physics are scattering experiments, the analysis of which leads to masses, scattering phases, decay widths and other properties of one or multi-particle systems. Until the advent of Lattice Quantum Chromodynamics (LQCD) it was difficult to compare experimental results on low energy hadron-hadron scattering processes to the predictions of QCD, the current theory of strong interactions. The reason being, at low energies the QCD coupling constant becomes large and the perturbation expansion for scattering; amplitudes does not converge. To overcome this, one puts the theory onto a lattice, imposes a momentum cutoff, and computes the integral numerically. For particle masses, predictions of LQCD agree with experiment, but the area of decay widths is largely unexplored. ^ LQCD provides ab initio access to unusual hadrons like exotic mesons that are predicted to contain real gluonic structure. To study decays of these type resonances the energy spectra of a two-particle decay state in a finite volume of dimension L can be related to the associated scattering phase shift δ(k) at momentum k through exact formulae derived by Lüscher. Because the spectra can be computed using numerical Monte Carlo techniques, the scattering phases can thus be determined using Lüscher's formulae, and the corresponding decay widths can be found by fitting Breit-Wigner functions. ^ Results of such a decay width calculation for an exotic hybrid( h) meson (JPC = 1-+) are presented for the decay channel h → πa 1. This calculation employed Lüscher's formulae and an approximation of LQCD called the quenched approximation. Energy spectra for the h and πa1 systems were extracted using eigenvalues of a correlation matrix, and the corresponding scattering phase shifts were determined for a discrete set of πa1 momenta. Although the number of phase shift data points was sparse, fits to a Breit-Wigner model were made, resulting in a decay width of about 60 MeV. ^