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In this series, I will be discussing all about HW 1F model.
Let’s say we already know the model parameters after having done calibration. $$dr = [\theta(t) - ar]\,dt + \sigma\,dz$$Where, a: mean reversion speed σ: volatility of the short rate θ(t): time-dependent function ensuring the model fits the initia...
We will start with the assumption that we have access to an initial yield curve. Using this initial yield curve, we will determine the forward curve. $$F(0,t) = \frac{\partial}{\partial t}\big(R(0,t)\,t\big) = R(0,t) + t\,\frac{\partial R(0,t)}{\part...
European BO Can be priced analytically American BO We will construct a trinomial tree for this