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by YELIZ YOLCU
The uncertainty attached to future movements of interest rates is an essential part of the Financial Decision Theory and requires an awareness of the stochastic movement of these rates. Several approaches have been proposed for modeling the one-factor short rate models where some lead to arbitrage-free term structures. However, no denite consensus has been reached with regard to the best approach for interest rate modeling. In this work, we brie y examine the existing one-factor interest rate models and estimate the parameters of Vasicek and Hull-White (Extended Vasi Models by using Turkey's term structure. Moreover, a trinomial interest rate tree is constructed to represent the evolution of Turkey's zero coupon rates.