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  2. Black–Derman–Toy model - Wikipedia

    en.wikipedia.org/wiki/Black–Derman–Toy_model

    Once solved, retain these known short rates, and proceed to the next time-step (i.e. input spot-rate), "growing" the tree until it incorporates the full input yield-curve. In mathematical finance , the Black–Derman–Toy model ( BDT ) is a popular short-rate model used in the pricing of bond options , swaptions and other interest rate ...

  3. Bond valuation - Wikipedia

    en.wikipedia.org/wiki/Bond_valuation

    t. e. Bond valuation is the process by which an investor arrives at an estimate of the theoretical fair value, or intrinsic worth, of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by ...

  4. Lattice model (finance) - Wikipedia

    en.wikipedia.org/wiki/Lattice_model_(finance)

    Lattice model (finance) Binomial Lattice for equity, with CRR formulae. Tree for an (embedded) bond option returning the OAS (black vs red): the short rate is the top value; the development of the bond value shows pull-to-par clearly. In finance, a lattice model[1] is a technique applied to the valuation of derivatives, where a discrete time ...

  5. Heath–Jarrow–Morton framework - Wikipedia

    en.wikipedia.org/wiki/Heath–Jarrow–Morton...

    The Heath–Jarrow–Morton (HJM) framework is a general framework to model the evolution of interest rate curves – instantaneous forward rate curves in particular (as opposed to simple forward rates). When the volatility and drift of the instantaneous forward rate are assumed to be deterministic, this is known as the Gaussian Heath–Jarrow ...

  6. Vasicek model - Wikipedia

    en.wikipedia.org/wiki/Vasicek_model

    A trajectory of the short rate and the corresponding yield curves at T=0 (purple) and two later points in time. In finance, the Vasicek model is a mathematical model describing the evolution of interest rates. It is a type of one-factor short-rate model as it describes interest rate movements as driven by only one source of market risk.

  7. Ho–Lee model - Wikipedia

    en.wikipedia.org/wiki/Ho–Lee_model

    In financial mathematics, the Ho-Lee model is a short-rate model widely used in the pricing of bond options, swaptions and other interest rate derivatives, and in modeling future interest rates. [1]: 381 It was developed in 1986 by Thomas Ho [2] and Sang Bin Lee. [3] Under this model, the short rate follows a normal process:

  8. Fisher equation - Wikipedia

    en.wikipedia.org/wiki/Fisher_equation

    Fisher equation. In financial mathematics and economics, the Fisher equation expresses the relationship between nominal interest rates, real interest rates, and inflation. Named after Irving Fisher, an American economist, it can be expressed as real interest rate ≈ nominal interest rate − inflation rate.[1][2] In more formal terms, where ...

  9. Dirty price - Wikipedia

    en.wikipedia.org/wiki/Dirty_price

    In finance, the dirty price is the price of a bond including any interest that has accrued since issue of the most recent coupon payment. This is to be compared with the clean price, which is the price of a bond excluding the accrued interest. Dirty Price = Clean Price + Accrued Interest. When bond prices are quoted on a Bloomberg Terminal ...