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A New Finite Element Method For Pricing Of Bond Options Under Time Inhomogeneous Affine Term Structure Models Of Interest Rates

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  • HONGTAO YANG

    (Department of Mathematics, University of Louisiana at Lafayette, Lafayette, LA 70504-1010, USA)

Abstract

In this paper we propose a new finite element method for pricing of bond options under time inhomogeneous one-factor affine models of short interest rates: the Hull–White model and the extended CIR model. The stability and weak convergence are established. Numerical results are presented to examine the method and to compare the calibrated models.

Suggested Citation

  • Hongtao Yang, 2007. "A New Finite Element Method For Pricing Of Bond Options Under Time Inhomogeneous Affine Term Structure Models Of Interest Rates," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 31-49.
    • Handle: RePEc:wsi:ijtafx:v:10:y:2007:i:01:n:s021902490700410x
    DOI: 10.1142/S021902490700410X
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