Improving Discrete Implementation of the Hull and White Two-Factor Model
|Professorship/Faculty:||Banking and Financial Control||Authors:||Muck, Matthias ; Rudolf, Markus||Title of the Journal:||The Journal of Fixed Income : JFI||Corporate Body:||Inst. Investor, Inc.|
|Publisher Information:||New York, NY|
|Year of publication:||2005||Volume:||14||Issue:||4||Pages / Size:||67 - 75 : graph. Darst.||Year of first publication:||2005||Language(s):||English||DOI:||10.3905/jfi.2005.491116||Document Type:||Article||Abstract:||
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.
|URI:||https://fis.uni-bamberg.de/handle/uniba/471||Release Date:||24. September 2012|