In this paper we continue the research of our recent interest rate tree model called Zero Black-Derman-Toy (ZBDT) model, which includes the possibility of a jump at each step to a practically zero interest rate. This approach allows to better match to risk of financial slowdown caused by catastrophic events. We present how to valuate  wide range of financial derivatives for such  model. The classical Black-Derman-Toy (BDT) model and novel  model are described and analogies in their calibration methodology are established. Finally two cases of applications of the novel ZBDT model were introduced. The first of them is the hypothetical case of an S-shape term structure and decreasing volatility of yields. The second case is an application  in the structure of United State sovereign bonds of the ZBDT model in the current 2020 economic slowdown caused by the Coronavirus pandemic. The objective of this study is to understand the differences presented by the valuation in both models for different derivatives.
In this paper we continue the research of our recent interest rate tree model called Zero Black-Derman-Toy (ZBDT) model, which includes the possibility of a jump at each step to a practically zero interest rate. This approach allows to better match to risk of financial slowdown caused by catastrophic events. We present how to valuate a wide range of financial derivatives for such a model. The classical Black-Derman-Toy (BDT) model and novel ZBDT model are described and analogies in their calibration methodology are established. Finally two cases of applications of the novel ZBDT model are introduced. The first of them is the hypothetical case of an S-shape term structure and decreasing volatility of yields. The second case is an application of the ZBDT model in the structure of United States sovereign bonds in the current 2020 economic slowdown caused by the Coronavirus pandemic. The objective of this study is to understand the differences presented by the valuation in both models for different derivatives.
A
a
A
a
A
ZBDT
R
were
are
A
of the ZBDT model
R
State sovereign bonds of the ZBDT model
States sovereign bonds