What is the appropriate time step to use in estimating parameters for, and projecting short rates using, the CIR model? Can estimates based on daily time series data be used in an interest rate model that projects short rates at a monthly time interval? The
A key element in the construction of the Black Derman Toy interest rate model is the setting up and running of EXCEL’s Solver function. The Solver functionality links various parts of the model together, the inputs- initial zero curve rates and their volatilities, the calculation
The Black Derman Toy (BDT) model is a one-factor, no-arbitrage interest rate model. One-factor in that the entire term structure of interest rates can be inferred with reference to the process underlying the short rates derived. No-arbitrage in that the term structure derived is exactly
Practice Test Exam Solution. Bootstrapping forward curve. Here is abbreviated partial solved solution to the practice exam question posed earlier. The practice exam question was used in Derivatives Pricing course taught to MBA students earlier in August 2012. The solution is presented in two parts. The
CIR Model – Parameter Calibration and short rate simulation The Cox-Ingersoll-Ross (CIR model) interest rate model is a one-factor, equilibrium interest rate model. One factor in that it models the short – term interest rate and equilibrium in that it uses assumptions about various economic
Addendum: How to conduct a Principal Component Analysis in EXCEL There are a couple of problems that the user may face after running the Solver function in EXCEL for the Principal Component Analysis of treasury yield rates. 1. Dummy Values for the Eigenvector matrix The
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INTEREST RATE MODELLING Interest Rate Modelling: Introduction Interest Rate Forecasting: Using CIR (Cox Ingersoll Ross) Model: Introduction Interest Rate Forecasting: Using CIR (Cox Ingersoll Ross) Model: Estimating Parameters & Calibrating the CIR Model Interest Rate Forecasting: Using CIR (Cox Ingersoll Ross) Model: Simulating the term
Interest Rate Models: Steps for building Black, Derman and Toy (BDT) model in Excel: How to utilize the results of a BDT interest rate model: Pricing Options
In this post we will consider how the Black-Derman-Toy (BDT) short rate binomial tree will be used to price options on bonds. Pricing Options The BDT model may also be used to price put or call options on bonds. For the purpose of calculating these