R/Spanned_Factors.R

In MultiATSM: Multicountry Term Structure of Interest Rates Models

#' Computes the country-specific spanned factors
#
#'@param Yields A matrix  (J x T), where J is the number of maturities and T is the length of the time series.
#'@param Economies A character vector containing the names of the economies included in the system.
#'@param N Scalar representing the desired number of country-specific spanned factors (maximum allowed is N = J).
#'
#'@return Matrix containing the N spanned factors for all the countries of the system  (CJ x T)
#'@examples
#' data(CM_Yields)
#' Economies <- c("China", "Brazil", "Mexico", "Uruguay")
#' N <- 3
#' SpaFact_TS <- Spanned_Factors(Yields, Economies, N)
#'
#'@export


Spanned_Factors <- function(Yields, Economies, N) {

  # Validate inputs
  if (!is.matrix(Yields)) {  stop("Yields must be a matrix.")  }
  if (!is.character(Economies) || length(Economies) == 0) { stop("Economies must be a non-empty character vector.")  }
  if (!is.numeric(N) || N <= 0 || N != round(N)) {stop("N must be a positive integer.")  }

  C <- length(Economies)   # number of the economies of the system

  # Label of the spanned factors
  LabelsSpannedALL <- c("Level", "Slope", "Curvature", "Fourth PC", "Fifth PC", "Sixth PC", "Seventh PC", "Eighth PC")
  LabelsSpanned <- LabelsSpannedALL[1:N]

  # Spanned factors:
  P <- c()

  for (i in 1:C) {
    Idx <- grepl(Economies[i], rownames(Yields)) # Extract the yields of a single country
    Y_CS <- Yields[Idx,] # Country-specific yields
    W <- pca_weights_one_country(Y_CS, Economies[i]) # Weight matrix
    if(N > nrow(Y_CS)){stop("The Number of country-specific spanned factors cannot exceed the number of country-specific bond yields.")}
    W <- W[1:N,] * 100 # Select only the set of weights that will be used to compute the first N PCs
    if (i == 1){
      P <- W%*%Y_CS # Country-specific spanned factor
      row.names(P) <- paste(LabelsSpanned, Economies[i])
      } else {
    Ptemp <- W %*% Y_CS # Country-specific spanned factor
    row.names(Ptemp) <- paste(LabelsSpanned, Economies[i])
    P <- rbind(P, Ptemp)
  }
  }

  return(P)
}