A numerical PDE approach for pricing callable bonds
نویسندگان
چکیده
منابع مشابه
Numerical methods for pricing callable bonds
A callable bond is a bond that allows the issuer to buy back the bonds from the bond holders at pre-specified prices on the pre-specified call dates. Therefore, a callable bond is a straight bond embedded with a call of European option (a single call date) or Bermudan option (serval call dates). However, this option is an integral part of a bond, and cannot be traded alone, and hence, its price...
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Modelling correlation between financial quantities is important in the accurate pricing of financial derivatives. In this paper, we introduce some stochasticity in correlation, by considering a regime-switching correlation model, in which the transition rates between regimes are given. We present a derivation of the associated Partial Differential Equation (PDE) problem. The problem involves a ...
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We propose an efficient method to evaluate callable and putable bonds under a wide class of interest rate models, including the popular short rate diffusion models, as well as their time changed versions with jumps. The method is based on the eigenfunction expansion of the pricing operator. Given the set of call and put dates, the callable and putable bond pricing function is the value function...
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This paper presents a 3D model for pricing defaultable bonds with embedded call options. The pricing model incorporates three essential ingredients in the pricing of defaultable bonds: stochastic interest rate, stochastic default risk, and call provision. Both the stochastic interest rate and the stochastic default risk are modeled as a square-root diffusion process. The default risk process is...
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ژورنال
عنوان ژورنال: Applied Mathematical Finance
سال: 2001
ISSN: 1350-486X,1466-4313
DOI: 10.1080/13504860110046885