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Choosing Mean Reversion Inputs for Hull–White Tree Calibration

Article Quant Q&A · Author: reed1707
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Summary

The document asks how to supply mean reversion values and their effective dates when calibrating a Hull–White interest rate tree in MATLAB to price a coupon-bearing bond. The author has volatility term structures, zero curves, bond market prices, and dates, and wants to know whether those inputs are enough to determine the mean reversion curve.

It frames a model specification question rather than presenting a calculation or answer. No calibration method, market evidence, or recommended data source is provided, so it does not establish whether mean reversion can be inferred from the listed data alone. The practical takeaway is that selecting this parameter requires a modeling or calibration choice that the document leaves unresolved; readers should not treat it as a solved procedure.

Key ideas

  • The question concerns the mean reversion curve and its date intervals in a Hull–White tree.
  • Available inputs include volatility term structures, zero curves, bond prices, and associated dates.
  • The document does not explain how to estimate or source the mean reversion parameters.
  • It leaves open whether additional market data or a separate calibration approach is needed.

Tags

Fixed incomeDerivatives pricingStatistics
Full text
# How to calculate mean reversion values for Hull White tree calibration on MATLAB?


# How to calculate mean reversion values for Hull White tree calibration on MATLAB?












As part of a time series analysis, I'm writing a MATLAB program to create a Hull White tree, for the purpose of pricing a coupon-bearing bond.

While using the function hwvolspec (volatility specifications), there are six input arguments, two of which are Alphacurve, which is the vector of mean reversion values, and AlphaDates, which is the vector of mean reversion end dates.

However, the only time series data that I have are the volatility term structures, the zero curves, the market prices of the bond in question, and I also have all the associated dates.

My main question is, how do I figure out the mean reversion values and dates from the data that I have? From where do I get the value of Alphacurve and AlphaDates? Do I need any additional data?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.