Generalizations of Ho–Lee’s binomial interest rate model I: from one- to multi-factor
AbstractIn this paper a multi-factor generalization of Ho–Lee model is proposed. In sharp contrast to the classical Ho–Lee, this generalization allows for those movements other than parallel shifts, while it still is described by a recombining tree, and is a process with stationary independent increments to be compatible with principal component analysis. Based on the model, generalizations of duration-based hedging are proposed. A continuous-time limit of the model is also discussed. Copyright Springer Science+Business Media, LLC 2006
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Bibliographic InfoArticle provided by Springer in its journal Asia-Pacific Financial Markets.
Volume (Year): 13 (2006)
Issue (Month): 2 (June)
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Web page: http://springerlink.metapress.com/link.asp?id=102851
Ho–Lee model; Duration; Multi-factor; Recombining tree; Stationary increments; Forward rate; Drift condition; 91B28; 60G50; G12;
Other versions of this item:
- Jir\^o Akahori & Hiroki Aoki & Yoshihiko Nagata, 2006. "Generalizations of Ho-Lee's binomial interest rate model I: from one- to multi-factor," Papers math/0606183, arXiv.org.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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