question about Hull's trinomial tree

alisa · October 4th, 2005, 5:40 pm

Please help!!!!!!When we are building a Hull trinomial tree, should we treat sigma as volatility of changes in rates or vol of returns (using log differences) or volatility of rates?I would think that we suppose to use vols of differences, right?And assuming that i know vols of returns can i convert this vol to vol of rate differences by : vol of diff = vol of returns * rate????thanks