Hello Mark,I just had a chance to go through the paper you sent and it's exactly what I'm looking for.I implemented another model that was good on short term spread options but then had very significant divergence in medium and long term.I'm not familiar with research in the area and I'm wondering if you could help clear up some sources of confusion for me. To a general practicing quant I am sure these are obvious points, but they are eluding me. Perhaps it'll be helpful to other newbies as well.A) In (4.4) How are the alphas determined. ? It's noted they are displaced diff coefficients but I don't follow how they are determinedB) (4.4) How is mu10 determined? C) In footnote on page 11 it is noted preserving p10,j is b10,1=1 and b10,2=0. Since this is a 10year,2year spread is that a valid assumption?I know you include C++ code with your books, I'm wondering if you would happen to have code for this that I could look at? That would make things crystal clear.
Last edited by analyst77
on March 15th, 2011, 11:00 pm, edited 1 time in total.