The Importance of the Black-Derman-Toy Model in Mathematical Finance

What is a Black-Derman-Toy Model?

Also known as a BDT, this model is named after those who introduced the model Fischer Black, Emanuel Derman and Bill Toy. It was initially published in 1990 in the Financial Analysts Journal but was developed for use by Goldman Sachs. If you want the history behind it, and how it came to be, you should read Emanuel Derman’s memoir “My Life as a Quant”. To understand the structure of this model there are a number of terms and ideas and other models that you must have fair knowledge about. When you look for Black-Derman-Toy Model homework help, it is important to ensure that all this information is present.

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Terms you need to know

As you go through your Black-Derman-Toy model homework help, you will see that in order to understand this model there are various other facts you need to know about. While it may not be necessary to have a detailed idea of all of this, a brief knowledge can make your learning process a lot easier and stress free. You will also be able to memorize and retain information a lot better, if you have a wider understanding of the subject. Below you will find a list of things that you should keep in mind.

  • A BDT use what is known as a binomial lattice, which helps to not only corroborate future interest rates but includes the stochastic volatility of these rates and the interest rates caps. Also known as a binomial options pricing model or BOPM is a numerical way of giving values to a number of options. It is used for a number of things like American Options and Bermudan Options as well in the Black-Scholes formula.
  • Using the lattice you can get a number of interest rate derivatives. These derivatives arise when there is a right to pay or receive some sort notional amount at a given interest rate from an underlying asset. It is very important to get as much information as you can about interest rate derivatives from your Black-Derman-Toy model assignment help. This information will come in handy through your study of mathematical finance.

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