Wednesday, January 28, 2015

interest rates - Historical calibration of Hull-White model


I have a question concerning 1-factor Hull-White model. For my master project I need to calibrate it to compute Counterparty credit risk metrics. I know that the model might be calibrated either for risk-neutral measure (in CVA applications) using market-traded swaptions or caps or for historical measure. This is where I am stuck at the moment. Can anyone offer a good paper / or some idea how to calibrate mean reversion parameter a and variance sigma to the historical data? What historical data do I have to use? And how to perform the calibration step-by-step?


If anyone also has also a solution in Matlab and could share it - that would be also highly appreciated =))


Thanks in advance





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