Zero Black-Derman-Toy Interest Rate Model

We propose a modification of the classical Black–Derman–Toy (BDT) interest rate tree model, which includes possibility jump with small probability at each step to practically zero rate. The corresponding BDT algorithms are consequently modified calibrate containing scenarios. This is motivated by recent 2007–2008 crisis in United States, and it quantifies risk future crises bond prices derivatives. proposed model can be useful price A comparison option implied volatilities on US Treasury bonds computed both provided six different scenarios along periods comprising years 2002–2017.