Ho-Lee Model

The Ho-Lee Model is a mathematical framework used to forecast future interest rates based on current rates and a random component representing market uncertainty. It assumes that interest rates evolve over time with a drift (trend) and random fluctuations, modeled as a process similar to many natural systems. This model helps financial professionals price and manage interest rate derivatives by providing a consistent way to simulate how interest rates might change in the future, considering both predictable trends and unpredictable market movements.