Financial Derivatives Toolbox™

hwvolspec - Specify Hull-White interest-rate volatility process

Syntax

Volspec = hwvolspec(ValuationDate, VolDates, VolCurve,
AlphaDates, AlphaCurve, InterpMethod)

Arguments

Note   The number of points in VolCurve and AlphaCurve do not have to be the same.

Description

Volspec = hwvolspec(ValuationDate, VolDates, VolCurve, AlphaDates, AlphaCurve, InterpMethod) creates a structure specifying the volatility for hwtree.

The volatility process is such that the variance of r(t + dt) - r(t) is defined as follows: V = (Volatility.^2 .* (1 - exp(-2*Alpha .* dt))) ./ (2 * Alpha). For more information on using Hull-White interest rate trees, see Hull-White (HW) and Black-Karasinski (BK) Modeling.

Examples

Using the data provided, create a Hull-White volatility specification (VolSpec).

ValuationDate = '01-01-2004';
StartDate = ValuationDate;
VolDates = ['12-31-2004'; '12-31-2005'; '12-31-2006'; 
'12-31-2007'];
VolCurve = 0.01;
AlphaDates = '01-01-2008';
AlphaCurve = 0.1;

HWVolSpec = hwvolspec(ValuationDate, VolDates, VolCurve,...  
AlphaDates, AlphaCurve)

HWVolSpec = 

             FinObj: 'HWVolSpec'
      ValuationDate: 731947
           VolDates: [4x1 double]
           VolCurve: [4x1 double]
         AlphaCurve: 0.1000
         AlphaDates: 733408
    VolInterpMethod: 'linear'

See Also

bktree, interp1

hwtree

instadd