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krs
Topic Author
Posts: 5
Joined: August 20th, 2019, 12:40 pm

Hull White Simulation

July 6th, 2020, 8:31 pm

Hello, 

I am working on Hull-White 2Factor model, I have to simulate it to generate zero curves for the next 50 years (at yearly frequency). I have EIOPA curve (zero rate curve at t =0, up to T=100 Years) and a matrix of swaption volatility. 

Could anyone guide me on how I can achieve it?  I see that there exists an analytical formula for P(t, T) to price a bond at time t, and expiring at time = T. However, I don't see Weiner increment in the formula, wondering if this can be used to simulate yield curves, what about the two sources of randomness in that case?

Thank you very much.
 
User avatar
DavidJN
Posts: 1753
Joined: July 14th, 2002, 3:00 am

Re: Hull White Simulation

July 7th, 2020, 3:22 am

In the 1-factor HW model, the idea is to simulate the short rate path and use the analytic equations to generate the discount bond prices and such given the short rate, vol, and mean reversion.  

Are you doing this primarily for pricing or exposure measurement purposes? 
 
krs
Topic Author
Posts: 5
Joined: August 20th, 2019, 12:40 pm

Re: Hull White Simulation

July 7th, 2020, 12:16 pm

Thank you, David. 

I am using it for pricing, I am using the analytical formula for bond prices and then calculating rates from it.

Can I call it price simulated in forward T measure?
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