A DETERMINISTIC APPROACH FOR SOLVING THE HULL AND WHITE INTEREST RATE MODEL

This work considers the resolution of the Hull and White interest rate model. A deterministic process is adopted to model the random behavior of interest rate variation as a deterministic perturbation. It shows that the interest rate function and the yield function of the Hull and White interest rat...

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Bibliographic Details
Published inTaiwanese journal of mathematics Vol. 15; no. 4; pp. 1721 - 1736
Main Authors Chen, Homing, Hu, Cheng-Feng
Format Journal Article
LanguageEnglish
Published Mathematical Society of the Republic of China 01.08.2011
Subjects
Algorithms
Determinism
Economic models
Interest rates
Mathematical functions
Mathematics
Semi infinite programming
Stochastic models
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Summary:This work considers the resolution of the Hull and White interest rate model. A deterministic process is adopted to model the random behavior of interest rate variation as a deterministic perturbation. It shows that the interest rate function and the yield function of the Hull and White interest rate model can be obtained by solving a nonlinear semi-infinite programming problem. A relaxed cutting plane algorithm is then proposed for the resulting optimization problem. The features of the proposed method are tested using a set of real data and compared with some commonly used spline fitting methods. 2000Mathematics Subject Classification: Primary 62P05; Secondary 46N10. Key words and phrases: Semi-infinite programming, Hull and White, Interest rate model.
ISSN:1027-5487
2224-6851
DOI:10.11650/twjm/1500406375