Calibration of one-factor and two-factor Hull-White models using swaptions

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F19%3A10240124" target="_blank" >RIV/61989100:27510/19:10240124 - isvavai.cz</a>

Result on the web

<a href="https://link.springer.com/article/10.1007/s10287-018-0323-z" target="_blank" >https://link.springer.com/article/10.1007/s10287-018-0323-z</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1007/s10287-018-0323-z" target="_blank" >10.1007/s10287-018-0323-z</a>

Result language

angličtina

Original language name

Calibration of one-factor and two-factor Hull-White models using swaptions

Original language description

In this paper, we analize a novel approach for calibrating the one-factor and the two-factor Hull-White models using swaptions under a market-consistent framework. The technique is based on the pricing formulas for coupon bond options and swaptions proposed by Russo and Fabozzi (J Fixed Income 25:76-82, 2016b; J Fixed Income 27:30-36, 2017b). Under this approach, the volatility of the coupon bond is derived as a function of the stochastic durations. Consequently, the price of coupon bond options and swaptions can be calculated by simply applying standard no-arbitrage pricing theory given the equivalence between the price of a coupon bond option and the price of the corresponding swaption. This approach can be adopted to calibrate parameters of the one-factor and the two-factor Hull-White models using swaptions quoted in the market. It represents an alternative with respect to the existing approaches proposed in the literature and currently used by practitioners. Numerical analyses are provided in order to highlight the quality of the calibration results in comparison with existing models, addressing some computational issues related to the optimization model. In particular, calibration results and sensitivities are provided for the one- and the two-factor models using market data from 2011 to 2016. Finally, an out-of-sample analysis is performed in order to test the ability of the model in fitting swaption prices different from those used in the calibration process. (C) 2018 Springer-Verlag GmbH Germany, part of Springer Nature

Czech name

—

Czech description

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Type

J_SC - Article in a specialist periodical, which is included in the SCOPUS database

CEP classification

—

OECD FORD branch

50206 - Finance

Project

<a href="/en/project/GA15-23699S" target="_blank" >GA15-23699S: Risk Probability Functionals and Ordering Theory Applied to International Financial Markets and Portfolio Selection Problems</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2019

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Computational Management Science

ISSN

1619-697X

e-ISSN

—

Volume of the periodical

16

Issue of the periodical within the volume

1-2

Country of publishing house

US - UNITED STATES

Number of pages

21

Pages from-to

275-295

UT code for WoS article

000458627300012

EID of the result in the Scopus database

2-s2.0-85048813914