<t>Hi,Let's say I have a portfolio of variable-rate mortgages and I want to stress test this portfolio in response to a changing interest rate environment via Monte Carlo simulations.My idea is to fit the base interest rate to a stochastic process of choice (say, CIR), estimate the parameters in the...

<t>I think I understand the weakness of the model. However, with regard to calibration, I have not found any papers that attempt to calibrate it using the current zero spot rate curve and NLS. Most papers either 1. Use time series data of the short rate (which means the fit will likely be poor for t...

<t>I have attempted to calibrate the 1-factor CIR model as follows:Assuming the model is dr = (a-br)dt + sigma * sqrt(r ) * dZ1. Bootstrap current yield and obtain theoretical spot rate curve2. Using the closed-form solution for the yield of a zero coupon bond, minimize sum of square errors using Ex...

I guess everyone knows how to do this and I'm far behind? Any tips...please?

<t>Hello,I am teaching myself about synthetic CDOs and I am trying to implement the standard 1-factor Gaussian copula model to price a synth CDO via simulation. I have read several papers and they all seem to assume that the reader knows how to implement this. Are there any papers or examples that w...

<t>Yes, we have two correlated lognormal processes, first being GBM and the second with an added term sigma2*sqrt(1-row)*s2*dw2. S2 is the price of the second asset, row is the corelation coeff, and dw2 is the second BM.Hua He's 1990 paper basically shows that n-variate (n+1)-nomial trees would appr...

I thought about using FDM, but doesn't that require knowing the PDE that discribes the option value? Can you elaborate on this approach further?

<t>It looks like trinomial trees for which m!=1 are considered nonrecombining, even though some nodes do recombine but in a non-systematic fashion. I am not aware of a general form for calculating node values based on the time step and node location for such trees. In that case, I cannot fathom why ...

<t>Hello,I was reading Hua He's 1990 paper and trying to use two trinomial trees to price an American spread option on two assets. It looks to me that the tree would be recombining, but not in the traditional sense. Hence, I am not able to obtain a general form for finding the underlying asset price...