Financial Derivitives Toolbox Release Notes

Chapter 1
Financial Derivatives Toolbox 2.0 Release Notes

New Features

This section introduces the new features and enhancements added in the Financial Derivatives Toolbox 2.0 since Version 1.0 (Release 12.1).

Note    The Financial Derivatives Toolbox 2.0 was initially released in Web-downloadable form after Release 12.1 was released, but before Release 13. There are no changes between the post-Release 12.1 version of the Financial Derivatives Toolbox 2.0 and the version shipped with Release 13.

Black-Derman-Toy Model

Version 2.0 of the Financial Derivatives Toolbox adds support for the Black-Derman-Toy (BDT) model for pricing interest rate derivatives. In the BDT model all security prices and rates depend upon the short rate (annualized one-period interest rate). The model uses long rates and their volatilities to construct a tree of possible future short rates. It then determines the value of interest rate sensitive securities from this tree.

The Black-Derman-Toy model works with a recombining tree. A recombining tree is the opposite of a bushy tree (used with the Heath-Jarrow-Morton (HJM) introduced in Version 1). A recombining tree has branches that recombine over time. From any given node, the node reached by taking the path up-down is the same node reached by taking the path down-up.

Financial Derivitives Toolbox Release Notes

New Functions in Version 2.0