# Category Archives: Interest Rate Modelling

## CIR Interest Rate Model – Appropriate Time Step

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

## BDT interest rate model – Limitations with EXCEL’s Solver Functionality and Workaround

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

## Using US Treasuries to calibrate the Black Derman Toy (BDT) Model

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 Case Study

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

## Cox-Ingersoll-Ross. CIR model. Parameter calibration & simulation

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

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

## Finance Training Courses: ICAAP: Win a seat at the ICAAP Treasury Risk Workshop, Langkawi at your price!

Purchase a copy of the “Risk Frameworks and Applications – 2nd Edition” and avail a novel opportunity to win via an auction a discounted seat at Alchemy’s upcoming workshop on ICAAP and Treasury Risk being held in tropical Langkawi, Malaysia on the 28th of March 2011.

## The ICAAP (Internal Capital Adequacy), Stress Testing and Credit Risk Road Map

The ICAAP (Internal Capital Adequacy Assessment) Roadmap post reviews the core topics in a crash course format for Internal Capital Adequacy Assessment.

## Interest Rate Modelling Posts Index

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