Re: Matching results between HW tree and simulation models

Posted by Gouthaman Balaraman on May 06, 2015; 5:04pm
URL: http://quantlib.414.s1.nabble.com/Matching-results-between-HW-tree-and-simulation-models-tp16399p16538.html

Peter

I think the grid size would determine how close the numbers will match the zero bonds in the tree implementation.

On a side note, I have played with trees to price European options, and I have noticed that the fair option value from the trees oscillated about the theoretical value. And how much it differed from the fair value depended on the grid spacing in the trees.
 
Check figure 2 in :
http://www.scribd.com/doc/4108897/Options-Pricing-Using-Binomial-Trees


I would expect a similar behavior here, though I haven't tried it myself.

Goutham