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

DOI10.1007/S10690-007-9039-8zbMATH Open1283.91186arXivmath/0606183OpenAlexW2140114617MaRDI QIDQ2643675FDOQ2643675

Authors: Jirô Akahori, Hiroki Aoki, Yoshihiko Nagata 

Publication date: 27 August 2007

Published in: Asia-Pacific Financial Markets (Search for Journal in Brave)

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.

Full work available at URL: https://arxiv.org/abs/math/0606183

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Mathematics Subject Classification ID

Sums of independent random variables; random walks (60G50) Interest rates, asset pricing, etc. (stochastic models) (91G30)

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Cited In (8)

• Continuous-time approximation of short-term interest rates in generalized Ho-Lee framework
• A result in the Ho and Lee's model
• Generalizations of Ho-Lee's binomial interest rate model II: randomization
• Extensions of the Ho and Lee interest-rate model to the multinomial case
• A noisy principal component analysis for forward rate curves
• Two extensions for fitting discrete time term structure models with normally distributed factors
• On the Mean-Variance Hedging in the Ho--Lee Diffusion Model
• A squared binomial tree approach to discrete-time bond market modelling

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