I have a tree that I use for valuing a Bermudian callable bond. I am satisfied with the accuracy of the prices (which is within 1 cent per $100 of notional). But the accuracy of the duration is not adequate (about .50 a year). Are there any "tricks" to increase the accuracy of the duration estimation?Thanks, Michael

Duration mispriced should tell you that your tree has a big pb: Because it shows that the yield curve zero coupons are not perfectly calibrated.I would advise you to try and find how to improve your drift calibration.One thing is strange in what you say: You should not have a good price for your bond if the duration is wrong. So the call price should be sligtly wrong too.But the too errors may offset each other a bit (when looking at the full structure) so that you don't see them.

QuoteOriginally posted by: pyatskiI have a tree that I use for valuing a Bermudian callable bond. I am satisfied with the accuracy of the prices (which is within 1 cent per $100 of notional). But the accuracy of the duration is not adequate (about .50 a year). Are there any "tricks" to increase the accuracy of the duration estimation?Unfortunately not really! Greeks (delta and even more gamma) are numerically instable in trees if you use a simple approach (shift the yield curve by 1bp and recompute the price). This was documented for the Cox-Ross-Rubistein model by Pelsser and Vorst ("The binomial model and the greeks", Journal of Derivatives, 44-49, spring 1994) and for the Hull-White model in Semi-explicit Delta and Gamma for European swaptions in Hull- White one factor model.If you are interested by Bermudan swaption in the gaussian HJM framework (extended Vasicek or Hull-White in particular) you can also have a look at the sequels of the second article that are devoted to Canary and Bermudan swaption using semi-analytical / numeric integration techniques (not tree)A semi-analytical approach to Canary swaptions in HJM one-factor modelBermudan swaptions in Hull-White one-factor model: analytical and numerical approachesBy avoiding the tree, the greeks are more stable.