Two extensions for fitting discrete time term structure models with normally distributed factors

This paper provides extensions to procedures for the implementation of two well‐known term structure models. In the first part, a misleading implication given in two textbooks concerning the ability to fit a Ho–Lee type term structure tree through trial and error is corrected, and it is shown that the tree can be fitted precisely with a simple and easily programmable formula. In the second part, a previously published result that obtains the drift for a single‐factor discrete time Heath–Jarrow–Morton model is extended to a multi‐factor world. In both cases numerical examples are provided.