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9
votes
2answers
3k 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 ...
9
votes
1answer
698 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
3answers
1k 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 ...
4
votes
1answer
928 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 ...
4
votes
1answer
263 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 ...
4
votes
1answer
294 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 ...
3
votes
1answer
390 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 ...
2
votes
1answer
325 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 ...
2
votes
1answer
81 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
47 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
0answers
165 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? ...
1
vote
1answer
871 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 ...
0
votes
0answers
44 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 ...