Interest rates or rather interest rate models are used to value interest sensitive instruments by not only determining the future stream of cash flows but also discounting this stream to determine present values and prices. There are a number of different types of interest rate models used: equilibrium models (e.g.Cox Ingersoll and Ross (CIR)) and no-arbitrage models (e.g. Black Derman Toy (BDT)) models, one-factor (e.g. Black Derman Toy (BDT)) and multifactor models (e.g. Heath-Jarrow-Merton (HJM)).
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