Abstract
This paper is concerned with implementing a method for pricing interest rate related derivatives. We first show a method for estimating the term structure of interest rates from market data and then show how this term structure is used to calibrate the Black-Derman-Toy model, a binomial model for the evolution of the short rate. An alogrithm for constructing the model is given and prices for several interest rate derivatives are then calculated using the Arrow-Debreu pricing scheme. Lastly, a framework for pricing coumpound options is explored.