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0
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1answer
16 views

LIBOR rates from Vasicek/Hull-White model?

I am somehow puzzled by the following problem: LIBOR rates are forward rates for an interbank loan for 1M or 3M (let's limit the range of possibilities to these two cases). Assuming that I have ...
0
votes
0answers
25 views

Hull white tree and the pricing of an interest rate swap

Currently, I have been able to set up the hull white tree. To price the swap, and we use the formula from Wilmott "Introduces Quantitative Finance", where we use the discount factors for all ...
0
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0answers
18 views

Second stage in Hull-white construction of trinomial tree

In Brigo's Interest Rate Models - Theory and Practice, there is a section about constructing a trinomial tree to approximate the short-rate process in Hull-White. In the first stage, the following ...
3
votes
1answer
90 views

Consequence of negative mean reversion of hull white one factor model

I tried to calibrate the data for hull-white one-factor model. Sometimes, I get negative estimate of mean reversion factor after the calibration process. When I plug the negative mean reversion factor ...
0
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0answers
38 views

Correlate the G2++ with a GBM model

In Matlab one can use the LinearGaussian2F function together with the simTermStructs function to create a simulated zero curve based on the G2++ model. Next to simulating the interest rates I need to ...
2
votes
1answer
125 views

Extended Hull White Interest Rate Model for Zero Coupon Bond

Please taking the following SDE dr = u (r; t) dt + w (r; t) dX: u (r; t) = a(t)-br; w (r; t) = c; b&c are constants and a(t) arbitrary function of time. If Zero Coupon Bond Z (r; T; T) = 1 ...
4
votes
1answer
124 views

Whites Reality Check for Pair Trading

I want to use the Monte Carlo Method described in Aronsons book Evidence based Technical Analysis to test if a given pairs trading strategy is useless. First step there is to randomize the returns of ...
2
votes
0answers
84 views

Callable bond price sensitivity to Hull-White volatility changes

I'm using classic Hull-White model for short term interest rate dynamic: $$dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$$ (Notation is quite intuitive, anyway I am using the same as Wikipedia ...
1
vote
1answer
100 views

Function A(t,T) in one-factor Hull-White model

I am struggling with Hull-White model now and have the following question: in the lecture notes under the link below I see how A(t,T) and B(t,T) are being derived. This requires the solution of ...
1
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0answers
27 views

number of trades - flaw in White Reality Check?

I went through Whites paper of the reality check for multiple strategy testing. To summarize at a simple example: I have 2 strategies, s1 and s2. s1 gives 2 signals and therefore 2 returns, s2 gives ...
1
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0answers
151 views

Historical calibration of Hull-White model

I have a question concerning 1-factor Hull-White model. For my master project I need to calibrate it to compute Counterparty credit risk metrics. I know that the model might be calibrated either for ...
3
votes
1answer
137 views

Extended CIR and discretization

Did someone know how to discretize this process efficiently : $dX(t) = \kappa [\theta(t)-X(t)]dt + \sigma \sqrt{X(t)}dW(t)$ I am looking for something more sophisticated than the trivial Euler ...
1
vote
2answers
115 views

Why does the short rate in the Hull White model follow a normal distribution?

Consider Hull White model $dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$ when we solve the SDE above we have $r(t)=e^{-\alpha t}r(0)+\frac{\theta}{\alpha}(1-e^{-\alpha t})+\sigma e^{-\alpha ...
1
vote
1answer
285 views

Zero coupon bond pricing under Extended Hull & White

How do you price zero coupon bond in extended Hull & White model by solving the Bond Pricing Equation??
2
votes
0answers
124 views

Calibration of Hull White One factor model in F.C.Park paper

I want to ask a question with reference to a paper from below link http://www.cmpr.co.kr/asset/research_material/implementing_interest_rate_models.pdf Minimization specified in Page 14: Mean ...
2
votes
1answer
148 views

Estimating mean reversion

I've read in some places that mean reversion parameters for a rates model, eg Hull White, can be estimated directly from the current yield curve. However I've not been able to find anything more on ...
4
votes
1answer
472 views

Calibrating Hull-White using volatility data

I would like to calibrate Hull-White model using volatility data.I am using [Park (2004)] paper as a reference. He suggests to minimize the following objective function: where the first term is ...
2
votes
0answers
280 views

Reasoning for Bloomberg's short rate volatilty calculation

Bloomberg, in its documentation, explains that it calculates the short rate volatility for its Hull White implementation by multiplying the e.g. 10y IRS rate (divided by 100) by the 10y cap vol. Why? ...
5
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3answers
2k views

Simulating the short rate in the Hull-White model

What is the best way to simulate the short rate $r(t)$ in a simple one factor Hull White process? Suppose I have $$ dr(t) = (\theta(t)-\alpha r(t))dt+\sigma dW_t $$ where $\theta(t)$ is calibrated ...
3
votes
1answer
513 views

How does the 2-factor Hull White model propagate the forward rates curve?

I've been trying to get a grasp on some of the basics of interest rate modeling, and am looking to simulate rates using the 2 factor Hull White model, which I am aware offers a more realistic model of ...
9
votes
2answers
5k views

How to calibrate Hull-White from zero curve?

I am interested in calibrating a Hull-White model to the market. I do not, however, have data on anything except the market zero curves, as all derivatives are being traded OTC. My plan is to ...
4
votes
2answers
480 views

Why is the mean time-dependent in the Hull-White interest rate model?

In the Vasicek interest-rate model, the interest rate reverts to a constant mean. This makes sense to me. In my conception, the mean ought to be time-invariant, since interest rates don't follow an ...
1
vote
1answer
2k views

Normal vs Lognormal Short Rate models

Are there any general arguments to decide whether it is better to use a model with a normal or a lognormal distribution of the short rate? E.g. Hull-White with a normal and Black-Karasinski with a ...
5
votes
1answer
1k views

On short-rate-models: Black-Karasinski (with constant parameters) compared to Vasicek

When modelling the term structure of interest rates, one widespread possibility is using the Black-Karasinski model, which is given by the following stochastic process ...
12
votes
2answers
811 views

Applicability of PCA to get historical volatilities to calibrate interest rates trees

My question in short is as follows: can I take main principal component of historical covariance matrix and use it as historical volatilities when fitting a binomial tree? Here's more detailed ...
4
votes
1answer
403 views

Reasonable Hull & White parameters

I am using a Hull & White model to simulate forward rates on US swap curve from the 1.10.2012. This is a part of a bigger picture, and I am interested in some reasonable values for the parameters ...