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- sanjaysivakumar
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Mean Reversion of BK Model
Hi Friends,I have a doubt about the meanreversion (a) in the Black Karansinski Model. Can "a" be negative? If so what about the swithing inbetween tree structure. Can any one please provide me the Mathematical Explanation material? Thanks in advance.
Mean Reversion of BK Model
You need a mathematical explanation of why the mean reversion level of the short rate is not negative?
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- woodsdevil
- Posts: 10
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Mean Reversion of BK Model
The mean reversion may be negative, especially in the short end, where you're more exposed to default risk.Question: why do you complicate your life with BK anyway ? It is painful to calibrate, it can explode at any time, and gives you no benefit in terms of dynamic anyway.