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How to utilize results of a Black Derman Toy Model

SKU 00057
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Product Details

About the course

This course presents a step-by-step methodology of how the results of the single factor short rate Black Derman Toy (BDT) model may be utilized to value bonds and options. This includes:

  1. An overview of the basic features of a BDT one factor interest rate model as well as some of the simplifying assumptions made in its construction.
  2. Procedure for generating the complete binomial interest rate tree for short rates from the median rates and their volatilities.
  3. Procedure for calculating the price of bonds and options on bonds using the short rate tree for determining and discounting cash flows/ payoffs of these instruments.

Learning Objectives

After taking this course you will be above to:

  • List the basic features and simplifying assumptions associated with the BDT model
  • Build the short rates tree from the outputs of the BDT model (median rates and volatilities)
  • Calculate the price of bonds using the derived short rate tree
  • Calculate the price of options using the derived short rate


Familiarity with basic mathematics, probability, statistics and EXCEL. Some knowledge of bond and derivative markets including how to derive zero coupon rates and volatilities from yield curve rates and how to set up and obtain output results from the BDT model. (Note: the file does not show how results from the BDT model were derived).

Target Audience

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.

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