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Construct an interest rate tree/network to match a given yield-to-maturity curve and volatilities. In the BDT model, possible future short rates are modeled as a binary (recombining)tree where each node has the two features:
Prob[rate goes up] = Prob{rate goes down] = .5, and
For each period i: uprate/downrate = constant.
The network, with time going left to right, looks like:
3 ...
/
2
/ \
1 3 ...
\ /
2
\
3 ...;