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9
votes
1answer
649 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 ...
2
votes
1answer
57 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 ...
2
votes
0answers
150 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? ...
0
votes
0answers
30 views

Self-financing strategy in the Hull-White bond model

I am having troubles with solving a particular problem concerning the self-financing portfolio in the Hull-White model (dr={phi(t)-ar}dt+sigmadW). Consider an expiry-T_0, Strike-K cll-option on a ...