Another Look at the Ho-Lee Bond Option Pricing Model
Young Shin Kim, Stoyan Stoyanov, Svetlozar Rachev, and Frank J., Fabozzi
TL;DR
This paper extends the Ho-Lee bond option pricing model by incorporating time-dependent parameters and a more flexible no-arbitrage condition, addressing previous limitations in the model.
Contribution
It introduces a generalized version of the Ho-Lee model with time-dependent parameters and a revised no-arbitrage condition for improved accuracy.
Findings
Enhanced model flexibility with time-dependent parameters
Resolution of a key drawback in the original Ho-Lee model
Maintains no-arbitrage condition under broader circumstances
Abstract
In this paper, we extend the classical Ho-Lee binomial term structure model to the case of time-dependent parameters and, as a result, resolve a drawback associated with the model. This is achieved with the introduction of a more flexible no-arbitrage condition in contrast to the one assumed in the Ho-Lee model.
Peer Reviews
No public reviews on file for this paper yet. If you reviewed it on a platform where reviews are public (OpenReview, ICLR, NeurIPS, ICML), you can paste yours below so the community can read it here.
Videos
No videos yet. Explain this paper in a talk, walkthrough, or lecture? Add one.
Taxonomy
TopicsStochastic processes and financial applications