Black-Karasinski Tree Setup
The Black-Karasinski (Bk) model assumes that the short rate follows a log-normal process. This means that the logarithm of the short rate is normally distributed, which ensures that interest rates remain positive. Setup a BK interest-rate tree model using the following functions:
Functions
bktimespec | Specify time structure for Black-Karasinski tree |
bktree | Build Black-Karasinski interest-rate tree |
bkvolspec | Specify Black-Karasinski interest-rate volatility process |
Topics
- Understanding Interest-Rate Tree Models
Financial Instruments Toolbox™ supports the Black-Derman-Toy (BDT), Black-Karasinski (BK), Heath-Jarrow-Morton (HJM), and Hull-White (HW) interest-rate models.
- Use treeviewer to Examine HWTree and PriceTree When Pricing European Callable Bond
This example demonstrates how to use
treeviewerto examine tree information for a Hull-White tree when you price a European callable bond. - Overview of Interest-Rate Tree Models
Financial Instruments Toolbox computes prices and sensitivities of interest-rate contingent claims based on several methods of modeling changes in interest rates over time.
