The Black-Karasinski Model: Thirty Years On

Abstract

This year marks the thirtieth anniversary of the publication of the seminal short rate model of Black and Karasinski [1991]. We look back over the early career of its co-originator Piotr Karasinski and record his story of how the model came to be developed, going on to review the impact it had subsequently, and the reasons behind the revival of interest which has been evident in recent years.

Keywords: short rate model, credit model, Black-Karasinski, perturbation methods, asymptotic expansion, analytic solution, correlation risk