Re: Matching results between HW tree and simulation models

Posted by Gouthaman Balaraman on May 26, 2015; 2:41pm
URL: http://quantlib.414.s1.nabble.com/Matching-results-between-HW-tree-and-simulation-models-tp16399p16591.html

Peter

Yes, the calibration with the market instruments would dictate the values for a, and sigma. The expression gives us an estimate on selecting the number of paths needed to obtain convergence in a Monte Carlo simulation (I haven't seen any discussed in other references so far).

I would have to do some research on your remark about the MC simulation without the risk neutral measure. I would expect the expression for variance of the discount factors would be the same in other "equivalent" probability measures as well. In which case, I wonder how other implementations get better convergence. It would be nice to get some insight into this.

Goutham