Financial Derivatives Toolbox™

bdttree - Construct BDT interest-rate tree

Syntax

BDTTree = bdttree(VolSpec, RateSpec, TimeSpec)

Arguments

`VolSpec`	Volatility process specification. See `bdtvolspec` for information on the volatility process.
`RateSpec`	Interest-rate specification for the initial rate curve. See `intenvset` for information on declaring an interest-rate variable.
`TimeSpec`	Tree time layout specification. Defines the observation dates of the BDT tree and the `Compounding` rule for date to time mapping and price-yield formulas. See `bdttimespec` for information on the tree structure.

Description

BDTTree = bdttree(VolSpec, RateSpec, TimeSpec) creates a structure containing time and interest-rate information on a recombining tree.

Examples

Using the data provided, create a BDT volatility specification (VolSpec), rate specification (RateSpec), and tree time layout specification (TimeSpec). Then use these specifications to create a BDT tree with bdttree.

Compounding = 1;
ValuationDate = '01-01-2000';
StartDate = ValuationDate;
EndDates = ['01-01-2001'; '01-01-2002'; '01-01-2003'; 
'01-01-2004'; '01-01-2005'];
Rates = [.1; .11; .12; .125; .13];
Volatility = [.2; .19; .18; .17; .16];

RateSpec = intenvset('Compounding', Compounding,...
					 'ValuationDate', ValuationDate,...
					 'StartDates', StartDate,...
					 'EndDates', EndDates,...
					 'Rates', Rates);
	 
BDTTimeSpec = bdttimespec(ValuationDate, EndDates, Compounding);
BDTVolSpec = bdtvolspec(ValuationDate, EndDates, Volatility);
BDTTree = bdttree(BDTVolSpec, RateSpec, BDTTimeSpec);

Use treeviewer to observe the tree you have created.

treeviewer(BDTTree)

bdttree - Construct BDT interest-rate tree

Syntax

Arguments

Description

Examples

See Also