Parameter Estimates

This technical paper presents a comprehensive methodology for estimating the parameters required for pricing quantos and convertible bonds under two-factor models. The focus is on combining implied market parameters with historical estimates to ensure accurate pricing, particularly when the market prices of liquid instruments are unavailable or inappropriate. The paper details the application of the General Hull & White stochastic interest rate models for cross-currency instruments and convertible bonds within the UnRısk framework. Key parameters, including correlation coefficients and volatilities, are estimated using historical data sets, and the underlying partial differential equations for these pricing models are derived and discussed. The proposed approach enhances the robustness and accuracy of pricing in multi-factor financial models.