Binomial Interest Rate Trees: A Synopsis of Uses and Estimation Approaches
Journal of Financial Education
The option features embedded in many intermediate and long-term bonds and fixed-income securities have made the binomial interest rate tree approach to bond valuation the standard model for pricing debt securities. This paper reviews how the binomial model is used to price bonds with option features and mortgage-backed securities and how it is estimated.
Johnson, R. Stafford; Zuber, Richard; and Gandar, John, "Binomial Interest Rate Trees: A Synopsis of Uses and Estimation Approaches" (2001). Faculty Scholarship. Paper 53.