Financial Derivatives Toolbox

bdttree

Build 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)
  
  
  

See Also

bdtprice, bdttimespec, bdtvolspec, intenvset

bdttimespec

bdtvolspec