Calibration of the Black-Derman-Toy model

Posted by Szu-Yu (Gary) Pai

Generate the tree of interest rate

Input:
Yield of 1 year
Yield of 2 year
Yield of 3 year
volatility of 1 year yield
volatility of 2 year yield
volatility of 3 year yield
Output:
Tree of interest rate:

The Calibration follows Black, Derman and Toy's paper .

Keywords: Binomial tree, No arbitrage interest rate model

 •  April 13, 2013  • 

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