Today is November 3, 2008. Table 22.3 provides the caps and swap rates quotes on this date.
Question:
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(a) Fit the two-factor Hull-White model to the cap prices. Is there any gain compared to the one-factor Hull-White model (discussed in Chapter 19)?
(b) Given the volatility estimates, fit the model to the LIBOR curve.
(c) Use the model to price a European swaption, whose quotes are available in Table 20.6 in Chapter 20. How well does the model do?
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a Figure presents the cap prices under the HullWhite models Single Factor and 2Factor as well as ...View the full answer
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