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Generalizations of Ho-Lee's binomial interest rate model I: from one- to multi-factor

Jiro Akahori (), Hiroki Aoki and Yoshihiko Nagata

Papers from arXiv.org

Abstract: In 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 stationary 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.

Date: 2006-06
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Journal Article: Generalizations of Ho–Lee’s binomial interest rate model I: from one- to multi-factor (2006) Downloads
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