Alan White and I spent the next two or three years working together on this. We developed what is known a stochastic volatility model. This is a model where the volatility as well as the underlying asset price moves around… — John Hull Copy Share Image
Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level of the rate. When the rate is very high, that direction is downward; when the… — John Hull Copy Share Image
The HoLee model was the first term structure model. I remember reading their paper soon after it was published and as it was fairly… — John Hull Copy Share Image
Alan White and I spent the next two or three years working together on this. We developed what is known a stochastic volatility model.… — John Hull Copy Share Image
Briefly speaking, our conclusion is that stochastic volatility does not make a huge difference as far as the pricing is concerned if you get… — John Hull Copy Share Image
Our starting point then was trying to find a way to incorporate mean reversion into the HoLee model. — John Hull Copy Share Image
We concluded that you cannot rely on delta hedging alone. It sounds simplistic to say that now, but back then, this was the sort… — John Hull Copy Share Image
We started giving presentations at practitioner conferences in 1986, and since then all of our derivatives research has been stimulated by contact with practitioners. — John Hull Copy Share Image
Our research led on to other things, such as the fact that exchange rates are not lognormally distributed. — John Hull Copy Share Image
There are challenges in terms of the measurement of VAR for what are known as nonlinear derivatives, where things like gamma and vega are… — John Hull Copy Share Image
If each of your time steps is one week long, you are not modeling the stock price terribly well over a one-week time period,… — John Hull Copy Share Image
Yes, our tree has an interesting shape. The center branches reflect the shape of the zero curve. When extreme parts of the tree are… — John Hull Copy Share Image
