- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 27. The Arbitrage-Free Valuation Framework
- Subject 2. The Basics of Creating a Binomial Interest Rate Tree
CFA Practice Question
An interest rate tree is based on ______ and ______.
Correct Answer: An interest rate model and assumption of interest rate volatility.
User Contributed Comments 2
| User | Comment |
|---|---|
| connor15 | The relationship among the set of rates associated with each individual nodal period is a function of the interest rate volatility assumption of the model being employed to generate the tree. |
| JNW1980 | Smoke and mirrors.... |