One-factor Hull-White Model Calibration for CVA - Part I: Instrument Selection With a Kink

Abstract

This paper is the first of a multi-part series on the calibration of the one-factor Hull-White short rate model for the purpose of computing CVAs (and xVAs) with an xVA system. It introduces an atypical bootstrapping scheme for the calibration of the short rate volatility. The second part focuses on the selection of the mean reversion parameter. In both expositions we present long-term time series results for EUR, JPY, and USD, covering the period from the beginning of 2009 (at the earliest) to spring 2020.

Keywords: xVA, Hull-White interest rate model, instrument selection for calibration, time series

JEL Classification: G