Lecture 9: Principal Component Analysis in Finance

MIT 18.642 Topics in Mathematics with Applications in Finance, Fall 2024
Instructor: Stefan Andreev
View the complete course: https://ocw.mit.edu/courses/18-642-topics-in-mathematics-with-applications-in-finance-fall-2024
YouTube Playlist: https://www.youtube.com/playlist?list=PLUl4u3cNGP601Q2jo-J_3raNCMMs6Jves

This lecture features a detailed guest lecture by Stefan Andreev on Principal Component Analysis (PCA) and its critical applications in quantitative finance, especially in modeling the U.S. bond market. The lecture explains PCA’s mathematical foundations, practical challenges, and how it helps identify key factors driving yield curve dynamics, enabling portfolio construction and risk management in highly correlated financial markets.

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