The BDTBONDT.lng Model

Black/Derman/Toy Binomial Interest Rate Model

View the model
Download the model

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 ...;

Keywords:

Bonds | Yield Curve | Black/Derman/Toy | Option Pricing | Binomial Option Pricing | Interest Rate | Derivatives |