Re: Matching results between HW tree and simulation models

Posted by Gouthaman Balaraman on May 22, 2015; 6:40pm
URL: http://quantlib.414.s1.nabble.com/Matching-results-between-HW-tree-and-simulation-models-tp16399p16581.html

Hey Rakesh

The convergence of Monte Carlo simulation of Hull-White model, as it turns out, not only depends on the number of paths that you use, but also on the parameters sigma and a that you chose.

I discuss the  convergence of Monte Carlo simulation of the Hull-White model in this blog post. To summarize, good convergence will be obtained for the P(0,T) as long as T is smaller than sqrt(a/sigma).
In your test case, you chose sigma=a=0.1. This means you will have good convergence for small number of paths as long as T is roughly a few months.

When you say you have seen good convergence with other vendor products, did you try the same parameters a, and sigma. It would be very interesting if that is the case.

Peter, Luigi, I would welcome your thoughts on my analysis.


Goutham