Main Content

Create two-factor additive Gaussian interest-rate model

The two-factor additive Gaussian interest rate-model is specified using the zero curve, a, b, sigma, eta, and rho parameters.

Specifically, the LinearGaussian2F model is defined using the following equations:

$$r(t)=x(t)+y(t)+\varphi (t)$$

$$dx(t)=-a(t)x(t)dt+\sigma (t)d{W}_{1}(t),x(0)=0$$

$$dy(t)=-b(t)y(t)dt+\eta (t)d{W}_{2}(t),y(0)=0$$

where $$d{W}_{1}(t)d{W}_{2}(t)=\rho dt$$ is a two-dimensional Brownian motion with correlation
*ρ*, and *ϕ* is a function chosen to match the initial
zero curve.

creates a `G2PP`

= LinearGaussian2F(`ZeroCurve`

,`a`

,`b`

,`sigma`

,`eta`

,`rho`

)`LinearGaussian2F`

(`G2PP`

) object using the
required arguments to set the Properties.

`simTermStructs` | Simulate term structures for two-factor additive Gaussian interest-rate model |

[1] Brigo, D. and F. Mercurio. *Interest Rate Models - Theory and
Practice.* Springer Finance, 2006.

`HullWhite1F`

| `LiborMarketModel`

| `simTermStructs`

| `capbylg2f`

| `floorbylg2f`

| `swaptionbylg2f`

| `LinearGaussian2F`