Maximum likelihood estimation of the Hull–White model

Kladívko, Kamil; Rusý, Tomáš

doi:10.1016/j.jempfin.2022.12.002

Cited by 2 publications

(2 citation statements)

References 29 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Here, c is the calibration time, dr c (t) is the change in the short-term interest rates, θ(t) is a deterministic term structure parameter chosen such that the model fits to the initial term structure, α is the mean reversion rate, σ for the volatility, and B(t) is the standard Brownian motion under the risk neutral probability measure P 1 . The explicit solution to the model is given by (see Appendix A and B in Kladívko and Rus ỳ (2023)). For given α, σ values, θ c (t) at calibration time c given by…”

Section: Interest Rate Processmentioning

confidence: 99%

“…Model Calibration: In order to calibrate the Hull-White one-factor model, both the term structure of spot rates and implied volatilities are required. Unlike some other interest rate models, which uses historical series data to calculate parameters, the Hull-White model utilizes cross-sectional data from a single point in time Kladívko and Rus ỳ (2023) Simulation: Post-calibration, the model is employed to simulate short rates (instantaneous interest rates at specific points in time) 5000 times within the designated time interval. Our focus lies on the 6-month USD LIBOR rates.…”

Section: Bond Couponsmentioning

confidence: 99%

See 1 more Smart Citation

Pricing Pandemic Bonds under Hull–White & Stochastic Logistic Growth Model

Manathunga,

Deng

2023

Risks

View full text Add to dashboard Cite

Pandemic bonds can be used as an effective tool to mitigate the economic losses that governments face during pandemics and transfer them to the global capital market. Once considered as an “uninsurable” event, pandemic bonds caught the attention of the world with the issuance of pandemic bonds by the World Bank in 2017. Compared to other CAT bonds, pandemic bonds received less attention from actuaries, industry professionals, and academic researchers. Existing research focused mainly on how to bring epidemiological parameters to the pricing mechanism through compartmental models. In this study, we introduce the stochastic logistic growth model-based pandemic bond pricing framework. We demonstrate the proposed model with two numerical examples. First, we calculate what investor is willing to pay for the World Bank issued pandemic bond while accounting for possible future pandemic, but require to have the same yield to maturity when no pandemic is there, and without using COVID-19 data. In the second example, we calculate the fair value of a pandemic bond with characteristics similar to the World Bank issued pandemic bond, but using COVID-19 data. The model can be used as an alternative to epidemic compartmental model-based pandemic bond pricing mechanisms.

show abstract

Section: Interest Rate Processmentioning

confidence: 99%

Section: Bond Couponsmentioning

confidence: 99%