A Spectral Method for Bonds
AbstractWe present an spectral numerical method for the numerical valuation of bonds with embedded options. We use a CIR model for the short term interest rate. The method is based in a Galerkin formulation of the relevant partial differential equation for the value of the bond discretized by means of orthogonal Laguerre polynomials. The method is proved to be very efficient, it shows a high precision for the type of problem we treat here and it is easy to use with more general models with non constant coefficients. As a consequence it can be a possible alternative to other approaches employed in practice specially when it is needed a calibration of the parameters of the model to match the observed market data.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 265.
Date of creation: 04 Jul 2006
Date of revision:
Finance; Bonds; Embedded Options; PDEs; spectral methods;
Find related papers by JEL classification:
- G00 - Financial Economics - - General - - - General
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.