# Ho-Lee model

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Ho-Lee model

In financial mathematics, the Ho-Lee model is a short rate model to predict future interest rates. It is the simplest model that can be calibrated to market data, by implying the form of $heta_t$ from market prices.

Model

The short rate follows a normal process ::$dr_t = heta_t, dt + sigma, dW_t$

References

* T.S.Y. Ho, S.B. Lee, "Term structure movements and pricing interest rate contingent claims", "Journal of Finance" 41, 1986
* John C. Hull, "Options, futures, and other derivatives", 5th edition, Prentice Hall, ISBN 0-13-009056-5

* [http://finance.wharton.upenn.edu/~benninga/mma/ho-lee.pdf Valuation and Hedging of Interest Rates Derivatives with the Ho-Lee Model] , Markus Leippold and Zvi Wiener, finance.wharton.upenn.edu

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