hjmtree (Financial Derivatives Toolbox)

Build an HJM forward rate tree

Syntax

HJMTree = hjmtree(VolSpec, RateSpec, TimeSpec)

Arguments

VolSpec
Volatility process specification. Sets the number of factors and the rules for computing the volatility for each factor. See hjmvolspec for information on the volatility process.

RateSpec
Interest rate specification for the initial rate curve. See intenvset for information on declaring an interest rate variable.

TimeSpec
Tree time layout specification. Defines the observation dates of the HJM tree and the Compounding rule for date to time mapping and price-yield formulas. See hjmtimespec for information on the tree structure.

`VolSpec`	Volatility process specification. Sets the number of factors and the rules for computing the volatility for each factor. See `hjmvolspec` for information on the volatility process.
`RateSpec`	Interest rate specification for the initial rate curve. See `intenvset` for information on declaring an interest rate variable.
`TimeSpec`	Tree time layout specification. Defines the observation dates of the HJM tree and the `Compounding` rule for date to time mapping and price-yield formulas. See `hjmtimespec` for information on the tree structure.

Description

HJMTree = hjmtree(VolSpec, RateSpec, TimeSpec) creates a structure containing time and forward rate information on a bushy tree.

Examples

Using the data provided, create a HJM volatility specification (VolSpec), rate specification (RateSpec), and tree time layout specification (TimeSpec). Then use these specifications to create a HJM tree with hjmtree.

Compounding = 1;
ValuationDate = '01-01-2000';
StartDate = ValuationDate;
EndDates = ['01-01-2001'; '01-01-2002'; '01-01-2003'; 
'01-01-2004'; '01-01-2005'];
Rates = [.1; .11; .12; .125; .13];
Volatility = [.2; .19; .18; .17; .16];
CurveTerm = [ 1; 2; 3; 4; 5]; 

HJMVolSpec = hjmvolspec('Stationary', Volatility , CurveTerm);

RateSpec = intenvset('Compounding', Compounding,...
                      'ValuationDate', ValuationDate,...
                      'StartDates', StartDate,...
                      'EndDates', EndDates,...
                      'Rates', Rates);
 
HJMTimeSpec = hjmtimespec(ValuationDate, EndDates, Compounding);
HJMTree = hjmtree(HJMVolSpec, RateSpec, HJMTimeSpec);

Use treeviewer to observe the tree you have created.

```
treeviewer(HJMTree)
```

hjmtimespec hjmvolspec