Pricing swaption by the Black-Derman-Toy model

Posted by Fred

Generate the tree of interest rate

Input:
Yield of 1 year
Yield of 2 year
Yield of 3 year
Yield of 4 year
Yield of 5 year
Volatility of 1 year yield
Volatility of 2 year yield
Volatility of 3 year yield
Volatility of 4 year yield
Volatility of 5 year yield
Nominal amount
Time to maturity of option
Tenor of swap
Strike interest rate
Output:
Price of swaption:

The Calibration follows Black, Derman and Toy's paper .

Keywords: Binomial tree, No arbitrage interest rate model, Swaption calculator

 •  April 28, 2013  • 

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