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Black Derman Toy Model Construction – EXCEL Example
About the course
The EXCEL file illustrates how to build a one factor interest rate model. This includes:
- Defining the input cells (including initial zero yield curve term structure, initial volatility term structure, required tenor, length of intervals and valuation date)
- Defining the calculation cells (including state price lattices, short rate tree, prices, yields and yield volatilities)
- Defining the output cells (including median rates, sigma cells, short rate tree)
- Setting up a Solver Function that links all the cells so that when run it determines the values for the output cells, i.e. the median rates, volatilities and short rates tree
After taking this course you will be able to:
- Build a BDT model in EXCEL
- Derive results for the model, i.e. the median rates, time varying volatilities and short rates tree by setting and running the Solver functionality in EXCEL
Familiarity with basic mathematics, probability, statistics and EXCEL. Some knowledge of bond markets and how to derive zero coupon rates and volatilities from yield curve rates.
The course is aimed at individuals responsible for the pricing of money market, derivatives and structured products as well as those involved in asset liability management and risk management, including the simulation and stress testing of rate sensitive asset and liability portfolios within banks, insurance companies and mutual funds.