Does it require calibration? Saw some where that if the market value isn’t equal to the model generated value a constant is added to all rates in the model
I presume that you mean using Monte Carlo simulation in an interest rate tree.
Yes, it needs to be calibrated.
There are various methods by which this can be accomplished.
Both Monte carlo simulation and binomial interest rate tree method can be used to value path dependent securities.
Is this statement correct
Tx in advance
They can both be used, but Monte Carlo simulation is far more common.
You’ll probably read that the binomial interest rate tree method (backward induction) cannot be used for path dependent securities. It isn’t true, but that’s what you’ll read.
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