Ho–Lee model
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In financial mathematics, the Ho-Lee model is a short rate model to predict future interest rates. It is the simplest model that can be calibrated to market data, by implying the form of θt from market prices. Ho and Lee does not allow for mean reversion.
[edit] Model
The short rate follows a normal process :
[edit] References
- T.S.Y. Ho, S.B. Lee, Term structure movements and pricing interest rate contingent claims, Journal of Finance 41, 1986
- John C. Hull, Options, futures, and other derivatives, 5th edition, Prentice Hall, ISBN 0-13-009056-5
[edit] External links
- Valuation and Hedging of Interest Rates Derivatives with the Ho-Lee Model, Markus Leippold and Zvi Wiener, finance.wharton.upenn.edu
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