Black-Derman-Toy

From Wikipedia, the free encyclopedia

The introduction to this article provides insufficient context for those unfamiliar with the subject matter.
Please help Wikipedia by improving the introduction according to the guidelines laid out at Wikipedia:Guide to layout. You can discuss the issue on the talk page.

Black-Derman-Toy, or BDT, in finance, is a model of the evolution of the yield curve, sometimes referred to as an interest-rate derivatives model. It is a one-factor model in which the single stochastic factor that determines the future evolution of all interest rates is the short rate, the interest rate for the shortest maturity possible on the yield curve. Long-term rates, in this model, are functions of future short rates. One can calibrate the parameters in the BDT model to fit the current yield curve and its volatility, and then use it to value all other interest-rate sensitive securities.

It was first developed for in-house use by Goldman Sachs in the 1980s but eventually published the Financial Analysts Journal in 1990. A personal account of the development of the model is provided in one of the chapters in Emanuel Derman's memoir "My Life as a Quant."

It is the product of Fischer Black, Emanuel Derman, and Bill Toy.