Improving Discrete Implementation of the Hull and White Two-Factor Model

  • This research analyzes the convergence properties of a discrete implementation of the Hull and White two-factor model. It compares caplet prices using both the discrete valuation algorithm and the analytic solution. Quality of the results depends crucially on the properties of the model parameters. The valuation algorithm may be improved while preserving its computational efficiency. An application of the modified algorithm to the caplet pricing problem indicates that substantially reduced valuation errors.

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Institutes:Fakultät Sozial- und Wirtschaftswissenschaften / Lehrstuhl für Betriebswirtschaftslehre, insbesondere Banking und Finanzcontrolling
Author:Matthias Muck, Markus Rudolf
Title of the journal / compilation (English):The Journal of Fixed Income : JFI
Publishing Institution:Inst. Investor, Inc.
Place of publication:New York, NY
Year of publication:2005
Issue:14 (2005), 4
Pages / Size:S. 67 - 75 : graph. Darst.
Year of first publication:2005
Document Type:Article in a journal
Publishing Institution:Otto-Friedrich-Universität Bamberg
Release Date:2012/11/15
Licence (German):License LogoKeine Lizenz