PT  - JOURNAL ARTICLE
AU  - Matthias Muck
AU  - Markus Rudolf
TI  - Improving Discrete Implementation of the Hull and White Two-Factor Model
AID  - 10.3905/jfi.2005.491116
DP  - 2005 Mar 31
TA  - The Journal of Fixed Income
PG  - 67--75
VI  - 14
IP  - 4
4099  - https://pm-research.com/content/14/4/67.short
4100  - https://pm-research.com/content/14/4/67.full
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.