Source: wikibot/black-derman-toy-model
= Black–Derman–Toy model
{wiki=Black–Derman–Toy_model}
The Black–Derman–Toy (BDT) model is a term structure model used in finance to describe the evolution of interest rates over time. Specifically, it is a single-factor model that assumes that short-term interest rates follow a mean-reverting stochastic process. This model is particularly useful for pricing interest rate derivatives and managing the risk associated with interest rate changes.