Yield Trading Generalization

Making the following changes to (1)(A), we can generalize the mechanism for yield trading:

  1. Replace X with PTx; PTx is the principal component of a given yield-bearing asset X

  2. Retain steps (2) through (6)

  3. Point 7 is reframed as follows:

  4. Pricing occurs as follows:

  5. Yields are defined as follows

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