This paper provides extensions to existing procedures for representing one-factor no-arbitrage models of the short rate in the form of a tree. It allows a wide range of drift functions for the short rate to be used in conjunction with a wide range of volatility assumptions. It shows that, if the...

Prior to 2007, derivatives practitioners used a zero curve that was bootstrapped from LIBOR swap rates to provide “risk-free” rates when pricing derivatives. In the last few years, when pricing fully collateralized transactions, practitioners have switched to using a zero curve bootstrapped...

Traditionally practitioners have used LIBOR and LIBOR-swap rates as proxies for risk free rates when valuing derivatives. This practice has been called into question by the credit crisis that started in 2007. Many banks now consider that overnight indexed swap (OIS) rates should be used as...

One-factor no-arbitrage models of the short rate are important tools for valuing interest rate derivatives. Trees are often used to implement the models and fit them to the initial term structure. This paper generalizes existing tree building procedures so that a very wide range of interest rate...