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Approximate formulae for pricing zero-coupon bonds and their asymptotic analysis


  • Beata Stehlikova
  • Daniel Sevcovic


We analyze analytic approximation formulae for pricing zero-coupon bonds in the case when the short-term interest rate is driven by a one-factor mean-reverting process with a volatility nonlinearly depending on the interest rate itself. We derive the order of accuracy of the analytical approximation due to Choi and Wirjanto. We furthermore give an explicit formula for a higher order approximation and we test both approximations numerically for a class of one-factor interest rate models.

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  • Beata Stehlikova & Daniel Sevcovic, 2008. "Approximate formulae for pricing zero-coupon bonds and their asymptotic analysis," Papers 0802.3039,, revised Jul 2008.
  • Handle: RePEc:arx:papers:0802.3039

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    References listed on IDEAS

    1. Sirimon Treepongkaruna & Stephen Gray, 2003. "On the robustness of short-term interest rate models," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(1), pages 87-121.
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