{ "cells": [ { "cell_type": "markdown", "id": "5894bc31", "metadata": {}, "source": [ "# Overview of BasicHullWhite\n", "\n", "The [Hull-White model](https://en.wikipedia.org/wiki/Hull%E2%80%93White_model) is a short rate model represented by the stochastic differential equiation:\n", "\n", " $$dr(t) = (\\theta(t) - a r(t))dt + \\sigma dW$$\n", "\n", "\n", "`BasicHullWhite` in the **economic** library is a simple implementation of the Hull-White model built using [modelx](https://github.com/fumitoh/modelx).\n", "\n", "`BasicHullWhite` preforms Monte-Carlo simulations and generates paths of the instantaneous short rate based on the Hull-White model. It also inclues formulas to calculate various properties of the Hull-White model.\n", "\n", "[Gouthaman Balaraman] presents some tests performed on a Hull-White model. He uses QuantLib to build his model, but the `BasicHullWhite` does not use QuantLib, and its Monte-Carlo simulations are generated from first principles using random numbers following the standard normal distribution. \n", "In addition, `BasicHullWhite` generates values of stochastic variable at each time step at once as a numpy array based on the vector modeling approach.\n", "\n", "This notebook aims to perform analyses similar to Balaraman's using `BasicHullWhite`. \n", "\n", "\n", "[Gouthaman Balaraman]: http://gouthamanbalaraman.com/blog/hull-white-simulation-quantlib-python.html\n", "\n", "\n", "