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fishfishqq
04-21-2008, 03:26 PM
I tried my best, but with no practice problems or even a hand-calculateable example, it seems really hard for me to remember all details about this model. Even I can force myself to memorize the paragraphs summarized in the study guide for this model (and all the related models such like extend Ho-Lee, BDT, Hull-White, etc.) somehow, I really doubt if I can use the information to answer any question in the exam...

Can someone share some valued ideas on how should we prepare for this part for the exam?? Many thanks!!!

The Smokin' Cracktuary
04-21-2008, 04:10 PM
I tried my best, but with no practice problems or even a hand-calculateable example, it seems really hard for me to remember all details about this model. Even I can force myself to memorize the paragraphs summarized in the study guide for this model (and all the related models such like extend Ho-Lee, BDT, Hull-White, etc.) somehow, I really doubt if I can use the information to answer any question in the exam...

Can someone share some valued ideas on how should we prepare for this part for the exam?? Many thanks!!!

Memorize the details from the outline.

underlying assumptions
arbitrage-free (and all details relating to that)
Like vasicek, but arbitrage-free
Closed form solution
Constant Volatility (say this for sure if comparing to extended version, since it is the primary difference)
calibrates to market prices
etc. etc.

Outside of that, if there is a calc question, it will be straight forwad and probably easy. It's a simple recombining binomial lattice. Works pretty much the same as all of the others. You may not even realize it is the Ho-lee model unless they specify. I wouldn't be too afraid of it.

Having said all of that, this was on the 2007 exam (sorta) as a list question, so it probably has less of a chance to be on this years.

AKD
04-24-2008, 12:03 AM
Phew! The arb models are not easy to understand especially if you do not have hands on experience. For instance it took me a will to realize that "dr" is the same for all the different maturities (0.25, 0.5, 1, 2 etc.) in the equilibrium models...so that we are looking at each of those rates going forward in time (sort of like the 3D graph in the text.

With the arb models, I think I will leave understanding them till after the exam. I'll just memorize....!!