Generalizations of Ho-Lee's binomial interest rate model I: from one- to multi-factor
Jiro Akahori (),
Hiroki Aoki and
Papers from arXiv.org
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.
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Journal Article: Generalizations of Ho–Lee’s binomial interest rate model I: from one- to multi-factor (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:math/0606183
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