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If each of your time steps is one week long, you are not modeling the stock price terribly well over a one-week time period, because you are saying... →
Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level... →
The HoLee model was the first term structure model. I remember reading their paper soon after it was published and as it was fairly different from... →
The problem with interest rates are that you are not modeling a single number, you are modeling a whole term structure, so it is a sort of different... →
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month... →
When interest rates are high you want the average direction in which interest rates are moving to be downward; when interest rates are low you want... →
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