Hi allI have built a model with the Hull-White extended Vasicek interest rate. I am trying to calibrate the model to some Euro vs. Euribor swap rates and this is going ok. My problem is that the volatility ends up being around 7 % which in this model causes the interest rates to fluctuate quite wildly going up to around 20 % and hitting 0 often. This doesn't seem very realistic but the prices of the swaptions in the market are hit pretty good with these parameters. So I guess my question is if these parameters should cause me to look for some kind of error in my model or if it can be correct?ThanksKAsper

Hmmmm.... This is the third time im posting a question which seems to be impossible to get answered ??

are you also calibrating the mean-reversion parameter?

QuoteOriginally posted by: ehremoare you also calibrating the mean-reversion parameter?Yes i am also calibrating this parameter! Why ?