Risk glossary

Flylets denote the curvature at different points along the yield curve. The concept was coined in 2016 in a Risk paper by Kharen Musaelian, Santhanam Nagarajan and Dario Villani.

Flylets represent those principal components of a term structure that come after the first few. Principal components are abstract risk factors used to categorise sources of variance in asset returns. While the first few components – generally representing parallel shifts and rotations of the yield curve – are aggregated into a single metric to represent movements of the whole term structure, the other components are grouped into overlapping sets of three flylets to represent the local curvature. For example, the fifth flylet describes movements of the fifth maturity relative to those of the fourth and sixth maturities.

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