The purpose of this article is to investigate Euro-Dollar Futures Options by Hull-White Trinomial Lattice approach empirically. The 920 options from Aug.1st.1997 to Aug.29th.1997 were tested by the Ho-Lee Model, the Hull-White Model and the Black Model.
When compared with market price, the models' prices showed average absolute errors of 1.17bp~1.52bp in nearby options, which results were similar with that of Amin & Morton's study (1994). But the prices of distant options were highly undervalued in proportion to their maturity.
The Black Model showed the worst results and the Hull-White Model showed the best results. Those results were affected by the role of mean reversion parameter "a" which determined the volatility structure.
It was observed that the boundary value on the parameter "a" should be controlled to ensure the stability of risk-neutral probability under Trinomial Lattice Approach.
