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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26690
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| Title: | The General Hull-White Model and Super Calibration |
| Authors: | Hull, John
White, Alan
Rotman, Joseph L.
Ontario, Toronto |
| Issue Date: | Aug-2000 |
| Series/Report no.: | FIN-00-024 |
| Abstract: | Term structure models are widely used to price interest-rate derivatives
such as swaps and bonds with embedded options. This paper describes how
a general one-factor model of the short-rate can be implemented as a
recombining trinomial tree and calibrated to market prices of actively
traded instruments such as caps and swap options. The general model
encompasses most popular one-factor Markov models as special cases. The
implementation and the calibration procedures are sufficiently general
that they can select the functional form of the model that best fits the
market prices. This allows the model to fit the prices of in- and
out-ofthe- money options when there is a volatility skew. It also allows
the model to work well very low interest-rate economies such as Japan
where other models often fail. |
| URI: | http://hdl.handle.net/2451/26690 |
| Appears in Collections: | Finance Working Papers
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