Mean-Reverting, Stochastic Vol IR binomial tree.
Posted: December 27th, 2011, 8:10 pm
What is the best (simplest) interest rate model that can be used to implement a mean-reverting, stochastic volatility binomial tree?I'm looking for something simple to implement so that I can plug in the forward rates and forward vols to create the tree. Also, I'm not pricing bonds or derivatives, I'm just trying to create the tree.I looked in Tuckman and implemented the Black Karasinski model, but that appears to be mean-fleeing whenever forward volatility is decreasing. Note: I don't want to input the Speed of Mean Reversion. I was hoping that this could come out of calibration. I really don't even know how you would go about measuring Speed of Mean Reversion.