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Lecture 09Brigo & Mercurio Sections 3.4–3.5

CIR Extensions & BK

Concluding classical one-factor short-rate models with CIR extensions and the Black–Karasinski model: positivity constraints, time-dependent parameters, lognormal short-rate dynamics, exact yield-curve fitting, conditional moments, trinomial tree calibration, and the tradeoffs between realism and tractability.

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Text Coverage

Brigo & Mercurio Sections 3.4–3.5

Brigo & Mercurio, Interest Rate Models, 2nd ed.