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The portfolio manager recognises one of the limitations of the Value-at-Risk is due to the assumption that the yield curve changes are parallel. She would

The portfolio manager recognises one of the limitations of the Value-at-Risk is due to the assumption that the yield curve changes are parallel. She would like to improve the methodology through a factor model for the dynamics of the yield curve. Please outline this new approach she would take and explain how the principal component analysis can be used by her to identify the factor model.

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