bdttree

Build Black-Derman-Toy interest-rate tree

Syntax

BDTTree = bdttree(VolSpec,RateSpec,TimeSpec)

Description

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

Examples

Create a BDTTree

Using the data provided, create a BDT volatility specification (using bdtvolspec), rate specification (using intenvset), and tree time layout specification (using bdttimespec). 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)

BDTTree = struct with fields:
      FinObj: 'BDTFwdTree'
     VolSpec: [1x1 struct]
    TimeSpec: [1x1 struct]
    RateSpec: [1x1 struct]
        tObs: [0 1 2 3 4]
        dObs: [730486 730852 731217 731582 731947]
        TFwd: {[5x1 double]  [4x1 double]  [3x1 double]  [2x1 double]  [4]}
      CFlowT: {[5x1 double]  [4x1 double]  [3x1 double]  [2x1 double]  [5]}
     FwdTree: {[1.1000]  [1.0979 1.1432]  [1.0976 1.1377 1.1942]  [1.0872 1.1183 1.1606 1.2179]  [1.0865 1.1134 1.1486 1.1948 1.2552]}

Use treeviewer to observe the tree you have created.

treeviewer(BDTTree)

Input Arguments

VolSpec — Volatility process specification

structure

Volatility process specification, specified using the VolSpec output obtained from bdtvolspec.

Data Types: struct

RateSpec — Interest-rate specification for initial risk-free rate curve

structure

Interest-rate specification for initial rate curve, specified by the RateSpec obtained from intenvset. For information on the interest-rate specification, see intenvset.

Data Types: struct

TimeSpec — Time tree layout specification

structure

Time tree layout specification, specified using the TimeSpec output obtained from bdttimespec. The TimeSpec defines the observation dates of the BDT tree and the Compounding rule for date to time mapping and price-yield formulas.

Data Types: struct

Output Arguments

BDTTree — Time and interest-rate information of a recombining tree

structure

Time and interest-rate information of a recombining tree, returned as a structure.

Version History

Introduced before R2006a