Skip to main content

Main menu

  • Latest
  • Issues
    • Published Ahead of Print (PAP)
    • Current Issue
    • Latest Articles
    • Archive
  • About
    • Journal Information
    • Editorial Board
    • About IIJ
  • Information for
    • Advertisers and Sponsors
    • Agents
    • Authors
    • Institutions
  • Events
  • Videos
  • Institutional Investor Journals: Home
    • The Journal of Alternative Investments
    • The Journal of Derivatives
    • The Journal of Index Investing
    • The Journal of Investing
    • The Journal of Portfolio Management
    • The Journal of Private Equity
    • The Journal of Retirement
    • The Journal of Structured Finance
    • The Journal of Trading
    • The Journal of Wealth Management
    • Practical Applications
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter
  • Visit IIJ on Facebook

User menu

  • Register
  • Subscribe
  • My alerts
  • Log in

Search

  • Advanced search
The Journal of Fixed Income
  • Institutional Investor Journals: Home
    • The Journal of Alternative Investments
    • The Journal of Derivatives
    • The Journal of Index Investing
    • The Journal of Investing
    • The Journal of Portfolio Management
    • The Journal of Private Equity
    • The Journal of Retirement
    • The Journal of Structured Finance
    • The Journal of Trading
    • The Journal of Wealth Management
    • Practical Applications
  • Register
  • Subscribe
  • My alerts
  • Log in
The Journal of Fixed Income

The Journal of Fixed Income

Advanced Search

  • Latest
  • Issues
    • Published Ahead of Print (PAP)
    • Current Issue
    • Latest Articles
    • Archive
  • About
    • Journal Information
    • Editorial Board
    • About IIJ
  • Information for
    • Advertisers and Sponsors
    • Agents
    • Authors
    • Institutions
  • Events
  • Videos
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter
  • Visit IIJ on Facebook
Primary Article

Generalized Ho-Lee Model

A Multi-Factor State-Time Dependent Implied Volatility Function Approach

Thomas S.Y. Ho and Sang Bin Lee
The Journal of Fixed Income Winter 2007, 17 (3) 18-37; DOI: https://doi.org/10.3905/jfi.2007.700217
Thomas S.Y. Ho
The President of Thomas Ho Company Ltd. in New York, NY. tom.ho@thomasho.com
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Sang Bin Lee
A professor of finance at Hanyang University in Seoul, South Korea. leesb@hanyang.ac.kr
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF
Loading

This article requires a subscription to view the full text. If you have a subscription you may use the login form below to view the article. Access to this article can also be purchased.

Abstract

This article presents a multifactor arbitrage-free interest rate lattice model. The model uses a state and time dependent implied volatility function. In calibrating this function from the set of swaption prices over a range of tenors and expiration, the interest rate model can capture surface not just the perceived volatility but the distributional form, in terms of the mix of lognormal and normal distributions, and the correlations of the rates. Swaptions are actively traded in the market that reflects the market views on the yield curve stochastic movements. Interest rate models tend to fix a distributional form or the correlation matrix of the rates, and therefore, they fail to subtract the market views from the swaption prices. This article provides a model that overcomes these crucial assumptions and it can be shown to provide significant explanatory power and computational efficiency. This model interest rate process has a number of desirable properties: (1) Consistent with historical rate experiences, with a mean reversion process, non-explosive rates, and truncated low rates. (2) A binomial recombining lattice provides efficient algorithms for American options and stratified sampling in valuing path dependent securities. (3) Straightforward to specify the multi-factor model and to specify the key rate durations and key rate vegas for risk management. The model is tested in this article empirically using monthly swaption prices over a one year sample period. The results show that the model can be calibrated to the observed swaption prices quite accurately.

  • © 2007 Pageant Media Ltd

Log in using your username and password

Forgot your user name or password?

Purchase access

You may purchase access to this article. This will require you to create an account if you don't already have one.
PreviousNext
Back to top

In this issue

The Journal of Fixed Income
Vol. 17, Issue 3
Winter 2007
  • Table of Contents
  • Index by author
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Fixed Income.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Generalized Ho-Lee Model
(Your Name) has sent you a message from The Journal of Fixed Income
(Your Name) thought you would like to see the The Journal of Fixed Income web site.
Citation Tools
Generalized Ho-Lee Model
Thomas S.Y. Ho, Sang Bin Lee
The Journal of Fixed Income Dec 2007, 17 (3) 18-37; DOI: 10.3905/jfi.2007.700217

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Generalized Ho-Lee Model
Thomas S.Y. Ho, Sang Bin Lee
The Journal of Fixed Income Dec 2007, 17 (3) 18-37; DOI: 10.3905/jfi.2007.700217
Permalink:
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
  • Info & Metrics
  • PDF

Cited By...

  • No citing articles found.
  • Google Scholar

More in this TOC Section

  • Empirical Evidence on CDO Performance
  • Annual Default Rates are Probably Less Than Long-Run Average Annual Default Rates
  • Crisis-Robust Bond Portfolios
Show more Primary Article

Similar Articles

Institutional Investor Journals
1120 Avenue of the Americas
New York, NY 10036

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter
  • Visit IIJ on Facebook

ABOUT US

  • Home
  • About IIJ
  • Nobel Laureates
  • Events
  • Awards
  • Careers

OUR OFFERINGS

  • Guides
  • Permissions and Reprints
  • Digital Archives

GET INVOLVED

  • Advertise or sponsor
  • Publish your work
  • Subscribe
  • Agents

CUSTOMER SERVICE

  • Contact Us
  • FAQ's
  • Feedback
  • Publishing Schedule 2017/2018
  • Code of Ethics
  • Subscribe Now
  • Log In

© 2018 Pageant Media Ltd | All Rights Reserved | ISSN: 1059-8596 | E-ISSN: 2168-8648

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies