Timeline for Value of option-free instruments with a short-rate model vs the spot curve
Current License: CC BY-SA 3.0
7 events
| when toggle format | what | by | license | comment | |
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| Dec 19, 2011 at 3:10 | answer | added | Foster Boondoggle | timeline score: 3 | |
| Dec 2, 2011 at 17:21 | history | tweeted | twitter.com/#!/StackQuant/status/142654729405739009 | ||
| Dec 2, 2011 at 17:00 | comment | added | user1443 | Sorry if it wasn't clear. in this example, you use something like the hull-white model, and lay out a tree of possible rates, and discount probability weighted values back to the root node. I know this is useful for options because on the extremes of the tree, as the value of the instrument gets extreme, you may exercise optionality and adjust in a way that you can't with discounting cashflows with a SINGLE static curve. Why then do people take the tree approach with a short rate model also when there's no optionality? | |
| Dec 2, 2011 at 16:56 | history | edited | user1443 | CC BY-SA 3.0 |
added 116 characters in body
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| Dec 2, 2011 at 14:44 | comment | added | Brian B | Well, you certainly want to do it when calibrating the model. | |
| Dec 2, 2011 at 10:28 | comment | added | TheBridge | @ user1443 : I don't understand your example, where exactly do you use a model in this example ? Otherwise for convexity sensitive instruments (for example Libor futures) you might need a model to calculate a convextiy adjustment but there is no options involved in the product itself. | |
| Dec 2, 2011 at 5:34 | history | asked | user1443 | CC BY-SA 3.0 |