The ABC of PCA

Often, the costs associated with implementing advanced statistical models can outweigh the potential benefits. Brett Humphreys shows how to smooth and speed up choppy simulations using principal components analysis

Risk managers face the constant problem of determining when the benefits of new or more advanced statistical techniques outweigh the costs. Benefits of these techniques include greater accuracy in risk measures, faster calculation,or greater model flexibility. On the cost side, the risk manager must consider the calculation time required as well as the complexity of the proposed solution. Unfortunately, as solutions become more complex they become more difficult to explain, and the process