Interest rate model

Hull and White interest rate model

Description

This model implements Hull-White single factor interest rate model based on the paper published by the duo in 1994. The code currently is written to deal with 3 step symmetric tree structure. However, it can further be modified to incorporate time varying two-factor asymmetric tree structure and implement both, Hull-White and Black-Karasinski models easily.

• MATLAB release: MATLAB 7.3 (R2006b)

[Some user]

Ok, your code implements Hull-white interest rate tree, but what that means?

Please include more details at summary.

What are the options of your script ? Why so many commented lines like:

% M = -a*dt;
% V = sigma^2*dt;

Are you still not sure about how to do it ?

And what about making a function instead of a script?

You implemented it with only 3 steps ? Are you sure you're going to converge to continuous time model with only 3 steps ? Why not a function to implement n steps ?

Please take a look into this issues...

[Sandeep Gore]

Hi,
Thanks for your comments. They are really helpful. As mentioned in description while uploading this file, the model just implements the example given in the paper published by Hull and White in 1994. As you rightly pointed out, the next logical step now will be to implement a function for continuous time interest rate model. I am working on that. The commnented lines you mentioned indicate the alternative ways to calculate a and M.

[Dimitri Shvorob]

EconLit finds no 1994 paper by Hull and White; could you be referring to the 1995 JFQA article? Also, since this is a (rather transparently parameterized) script - you are clearly not out to compete with Matlab's HWTREE - maybe rename it to '..demo'? (Speaking of parameterization, it beats me why you have prob{1}(1,1) = 1/6;
prob{1}(2,1) = 2/3;
prob{1}(3,1) = 1/6;
)