Year: 2009
International Journal of Numerical Analysis and Modeling, Vol. 6 (2009), Iss. 2 : pp. 274–283
Abstract
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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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/2009-IJNAM-767
International Journal of Numerical Analysis and Modeling, Vol. 6 (2009), Iss. 2 : pp. 274–283
Published online: 2009-01
AMS Subject Headings: Global Science Press
Copyright: COPYRIGHT: © Global Science Press
Pages: 10
Keywords: One factor interest rate model Cox-Ingersoll-Ross model bond price analytical approximation formula experimental order of convergence.