How to calculate mean reversion for Hull White tree calibration?

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reed1707 2017-8-15

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回答： Veda Upadhye 2017-8-23

I am trying to create a Hull White tree. While using the function hwvolspec, two of the input arguments are Alphacurve and AlphaDates. I just have the volatility term structure, the zero curve and the associated dates. From where do I get the value of Alphacurve and AlphaDates?

Thanks

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Answer 1

Veda Upadhye 2017-8-23

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Hi,

In order to create the Hull White tree, you would require to specify the parameters "AlphaCurve" (mean aversion values) and "AlphaDates"(mean aversion dates) as you mentioned. These parameters can be obtained by using existing market data. The "AlphaDates" or "EndDates" would be the market maturity date values. And you could call a calibration routine by using "hwcalbycap" function to obtain the "AlphaCurve" values. This function calibrates using the Hull-White model with "Strike", "Settle", and "Maturity" input arguments. You may find the following link useful:

 https://www.mathworks.com/help/fininst/calibrating-hull-white-model-using-market-data.html

Alternatively, you could calculate "AlphaCurve" values using the function "hwcalbycap" where the values would be calculated using the entire cap volatility surface. Here is a link for the same:

https://www.mathworks.com/help/fininst/hwcalbycap.html

Hope this helps!

Veda