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# Yield Curve and Interest Rate Trees

#### Ryan S

##### Member
Subscriber
David,

I struggle to see the difference between the yield curve and interest rate trees / models. I am pretty sure the interest rate tree impacts the yield curve. Or perhaps the yield curve is built on top of the interest rate tree, but I'm not sure if that's an accurate statement. I have a hard time connecting the two, and how to distinguish the two in my mind easily.

Are you able to offer any pointers on how to simply distinguish the two? Would love to hear your thoughts.

Thanks,
Ryan

#### ShaktiRathore

##### Well-Known Member
Subscriber
Hi
Interest rate tree gives possible evolution of interest rate over time with associated probabilities,while yield curve gives a definite evolution of interest rate over time. Basically tree models various interest rate paths possible over time thereby generating several possible interest rate paths,when tree collapse down to one particular path it generates the yield curve.
Thanks

#### Ryan S

##### Member
Subscriber
Hi
Interest rate tree gives possible evolution of interest rate over time with associated probabilities,while yield curve gives a definite evolution of interest rate over time. Basically tree models various interest rate paths possible over time thereby generating several possible interest rate paths,when tree collapse down to one particular path it generates the yield curve.
Thanks
@David Harper CFA FRM CIPM

Thank you, but sorry this doesn't really make it much clearer to me. For instance on the Bloomberg terminal there are multiple yield curves one can select from. That part confuses me a bit. I should probably revisit the basics on this one.

#### ShaktiRathore

##### Well-Known Member
Subscriber
Yes there can be multiple yield curves possible, we can collapse interest rate tree to various yield curves based on our assumptions. I am talking of any particular yield curve in general shall give definite evolution of interest rate over time. Based on a specific set of assumptions for tree one specific yield curve will generate,in this way for n set of assumptions for tree, n yield curves shall result.
Thanks