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by John H. Li

The Hull-White model is a single-factor, no arbitrage approach to modeling the term structure of interest rates. It models the term structure by describing the evolution of the short rate, or the instantaneous rate of interest. Implementing this model results in a trinomial pricing tree that can be used to price complex interest rate derivatives such as options on swaps and bonds. The difficulty of this model lies in its relative complexity and multi-stage implementation. The model's advantage over similar models is its calculation speed. This paper does not develop a new method but rather explains the author
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Pavel Č
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Emanuel Derman
Iraj Kani
Neil Chriss
SUMMARY In options markets where there is a significant or persistent volatility smile, implied tree models can ensure the consistency of exotic options prices with the market prices of liquid standard options. Implied trees can be constructed in a variety of ways. Implied binomial trees are minimal: they have just enough parameters
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