Has anyone worked on an implementation of the Hull Nelken & White model? I'm having some problems determining some of the inputs to the model. I know that I should be able to use two implied volatilities as well as plugging the other arguments to the Geske compound option model to get to a risky credit spread. However, there are a couple of things in the equations that cannot be observed in the market, e.g. alpha. If you have worked on this model implementation I would really like to start a dialogue w/you re: some of the terms, and how to complete the implementation, and when finished will be happy to share the work w/you. I can be reached at rks2006@columbia.edu Thanks, Raj

Have a look to the latest CreditGrades model implementation. They are using a similar argument as HW with closed formula solutions for call and put.There's a paper dated July 2005, which explains the methodology.Good luck,S

Have worked a lot with CreditGrades, but there's no alpha term in that model is there? HNW is a structural model, that incorporates skew, whereas CG does not. I think alpha in the model, is supposed to be the options moneyness, but not sure how you solve for that or observe that in the market? Anyone worked on this implementation out there?

Haven't worked on the implementation though. But, the paper on CreditGrades ATM Vol model would be useful I guess. Though the original CreditGrades doesnot take into account the equity options pricing. The variant of the same does.Paper published on the RiskMetrics Group website "Incorporating Equity Derivatives into the CreditGrades Model" - By Robert Stamicar and Christopher C Finger. I am attaching the same.Hope this helps.

I'm coming to this thread after a large break (9 years?) However I thought my experience might be interesting to anyone who finds this discussion after struggling with the Hull, Nelken, White paper. I burned a couple of days trying to resolve equations 8 & 9 and somehow back-out the L and sigmaA values from the known IVs. However, it so happened that I had Gatheral's "The Volatility Surface" on my desk and sure enough, he has an excellent discussion of this topic. His approach is, IMHO, more robust in that he draws values from all OTM puts, not just the 50 and 25 deltas. However, he also provides a worked example from which I was able to confirm my understanding of the approach using Excel's solver and some IV data from oX. Gatheral is well worth the read if you don't already have it (why wouldn't you?)