The calibration procedure takes only an interest rate curve as input (ignoring volatility surfaces) and results in adjusting the “alpha” parameter of the model. To test the calculations over a range of parameters, we used the “piece-wise constant parametrization” mode.

A flexible GIC represents a financial instrument paying an annual coupon and provides an option for the holder to redeem the principal and accrued interest during the thirty days following the first and second coupons.

An American style call option on bond yield is a binding agreement between two parties as to the terms of the transaction to which this contract relates. In addition, two parties agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement, with such modifications as we in good faith agree.

We propose a two-factor tree model that implements the Hull-White and Black-Karasinski models. The new tree model does preserve the martingale property of the stock for sufficiently long terms (with accuracy better that 10-8 for terms of at least 10 years).