Unlike most interest rate claim models, the Ho-Lee (1986) model utilizes full information on the current term structure. Unfortunately, the model has a major deficiency in that negative interest rates can occur. This article modifies the model such that interest rates are well behaved. Copyright...

This paper examines whether higher order multifactor models, with state variables linked "solely" to underlying LIBOR-swap rates, are by themselves capable of explaining and hedging interest rate derivatives, or whether models explicitly exhibiting features such as unspanned stochastic...