RT Journal Article
SR Electronic
T1 Improving Discrete Implementation of the Hull and White Two-Factor Model
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 67
OP 75
DO 10.3905/jfi.2005.491116
VO 14
IS 4
A1 Matthias Muck
A1 Markus Rudolf
YR 2005
UL https://pm-research.com/content/14/4/67.abstract
AB 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.