Hi,
I am trying to simulate by a two-factor tree an interest rate (vasicek) with
a stochastic volatility (lognormal). I am compelled to bound the vol to
prevent the gridsize to increase with the volatility.
This give me results (caplet prices) that are almost the same for a vol of
vol of 10% and the constant volatility case.
Is there any paper/refernce on how to build tree to simulate the diffusion
of asset/interest rate with stochastic volatility?
Thanking you.
Jay.
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