bdt: Black-Derman-Toy Interest Rate Tree

In m4fe: Models for Financial Economics

Description

Constructs the short rate tree using the data calibration model proposed by Black and Derman

Usage

bdt(yields, volatilities)

Arguments

yields	The historical zero-coupon bond yields
volatilities	The volatilities in force for each of the zero-coupon bonds at time 1. Note that volatilites[1] is undefined

Details

uses a version of newtons method that generalizes to n dimensions. May not converge for particular historical data

Examples

bdt(yields=c(0.10, 0.11, 0.12, 0.125), volatilities=c(NA, 0.10, 0.15, 0.14))

Example output

[[1]]
[1] 0.1

[[2]]
[1] 0.1322011 0.1082371

[[3]]
[1] 0.20170244 0.13662290 0.09254136

[[4]]
[1] 0.20028379 0.15683226 0.12280753 0.09616446

m4fe documentation built on May 29, 2017, 9:40 p.m.