hwvolspec

Specify Hull-White interest-rate volatility process

Syntax

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

Arguments

ValuationDate

Scalar value representing the observation date of the investment horizon.

VolDates

Number of points (NPOINTS)-by-1 vector of yield volatility end dates.

VolCurve

NPOINTS-by-1 vector or scalar of yield volatility values in decimal form. The term structure of VolCurve is the yield volatility represented by the value of the volatility of the yield from time t = 0 to time t + i., where i is any point within the volatility curve.

AlphaDates

MPOINTS-by-1 vector of mean reversion end dates.

AlphaCurve

MPOINTS-by-1 vector of positive mean reversion values or scalar in decimal form.

InterpMethod

(Optional) Interpolation method. Default is 'linear'. See interp1 for more information.

    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

expand all

Create a Structure Specifying the Volatility for hwtree

This example shows how to create a Hull-White volatility specification (VolSpec) using the following data.

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'

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