Term Structure Of Interest Rate And Its Application In Risk Management Based On Trident Tree Model

In recent years,with the development of economic globalization and financial integration,interest rate has become the focus of financial research.According to the relationship between interest rate and term,we draw a curve of term structure of interest rate in the coordinate system.Term structure of interest rate contains abundant information.Whether it is bond pricing or bond exploration,term struc-ture of interest rate is a very important breakthrough.With the in-depth study of term structure of interest rate,researchers have not only applied continuous models such as Vasicek model,CIR model and HJM model to term structure of interest rate,but also pursued discrete models such as Binary tree model and Trigeminal tree model.Binary tree Ho-Lee model opens a new way for the study of discrete models.Based on the Ho-Lee model of Binary tree,this paper adopts a Trident tree model which is more suitable for the actual market,which makes up for the deficien-cy of Ho-Lee model.Taking the bond as an example,the trinomial lattice process of the single period discount function and the multi period discount function is given,and the trinomial lattice process of the bond price is deduced,and the trinomial lattice process chart of the term structure is drawn.Referring to the method of Bi-nary tree Ho-Lee model,introducing disturbance function,according to the unique path independence of Trigeminal tree and no arbitrage restrictions,the relevant conclusions belonging to Trigeminal tree Ho-Lee model are obtained.Combined with the change of interest rate,the change process of interest rate in Trigeminal tree Ho-Lee model is obtained.Using local expectation hypothesis,the probability of interest rate changing along Trigeminal tree is given.At the end of this paper,the Trigeminal tree Ho-Lee model is applied to the application of interest rate risk,the Trigeminal tree Ho-Lee model is combined with stochastic duration,and the Trigeminal tree Ho-Lee model stochastic duration formula is applied to calculate the interest rate sensitivity gap.