Barrie & Hibbert

Knowledge Base » Implementation of the Extended 2-Factor Black-Karasinski Model

Implementation of the Extended 2-Factor Black-Karasinski Model

Document ID: 2007-18 (previously 2007/001)
Published on: 1st January 2007
Author: Steven Morrison

This document describes the technical details of the Barrie & Hibbert 2-factor Black-Karasinski (2FBK) model, updating and extending previous technical documentation in B&H technical note #2002/007. The note also describes details of the tree-based implementation of the model which has been updated to include the following features:

• The model has been extended to allow an exact fit to the initial yield curve.
• The tree is "pruned" at extreme nodes.
• There is a change to the way we parameterise correlation on the tree.

This new implementation is available as a new nominal interest-rate model -- "TwoFactorBKExt" -- from ESG Version 5.4.0 onwards.

• Model
  • 2 Factor Black Karasinski Model
  • 2 Factor Vasicek Model
  • Constant Volatility Model
  • Credit Model
  • Equity Mean-Reversion Model
  • Exchange Rate Model
  • General Equity Model
  • Inflation Model
  • Libor Market Model
  • Local Volatility Model
  • Mortality Model
  • Mortgage-Backed Securities Model
  • Other Models
  • Stochastic Volatility & Jump Diffusion Model
  • Time-Varying Deterministic Volatility Model

• Asset Class
  • Alternative Assets
  • Credit
  • Joint Distribution
  • Exchange Rate / Currency
  • Derivatives
  • Equity
  • Inflation
  • Interest Rates
  • Property

• Product Areas
  • Capital Measurement
  • Product Communication & Advice
  • Product Design & Governance
  • Risk & Capital Management

• Sectors
  • Retail Distribution
  • Asset and Wealth Management
  • Consultancy
  • Insurance
  • Pension Fund

Other categories

• Calibration Methodology & Techniques
• Calibration Notes
  • Market Consistent
  • Real World
• Calibration Targets
  • Target Methodology
  • Target Updates
  • Target Validation
• Events
• Insights
• iESG
  • Version 6.2
• Monte Carlo Methodology
  • Correlation Matrices
  • Random Number Generation
  • Variance Reduction
• Numerical Methods
• Outputs & Validation
• Solvency II Sample Documentation
• Archive

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