Question: We are working with the Black-Derman-Toy binomial tree model. Assume a constant short rate volatility each period at 20%. Construct a short rate tree

We are working with the Black-Derman-Toy binomial tree model. Assume a constant

We are working with the Black-Derman-Toy binomial tree model. Assume a constant short rate volatility each period at 20%. Construct a short rate tree given the following: r0,0 8%, and r2,0 6.4%. rij denotes the short rate for the ith period and the th node. Assume each period is one year. 10%, 1,0 - = =

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