I am wondering if anyone could recommend a few good papers on hybrid heston-hull white models, in particular with respect to the approximation of model European options for calibration. Literature on this seems to be a little scarce, especially if I am intending to price with in the Monte carlo framework.

Best Ben


Have you taken a look at the paper by Grzelak et al? https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1434829 This contains the details on MC and European option pricing for calibrating the model. I hope this helps point you in the right direction.

  • $\begingroup$ thanks! that is a great help, can i ask how does the HW1F model time dependent fit into his GN++ model for interest rates? $\endgroup$ – Benedict Aug 16 '18 at 8:58
  • $\begingroup$ If you look in Brigo & Mercurio, they show that for the N=2 case that the HW2F and G2++ are in fact the same model. There is a mapping between factors that you can apply to transform between the two. I'm pretty sure that the other cases are also equivalent, you can check this. The GN++ models are just a bit simpler to work with than the HW models directly as you are defining the deterministic part once. That's my understanding of it anyway... $\endgroup$ – BrownianBread Aug 22 '18 at 14:42

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