TITLE:
Pricing Callable Bonds Based on Monte Carlo Simulation Techniques
AUTHORS:
Deng Ding, Qi Fu, Jacky So
KEYWORDS:
Callable Bond; Monte Carlo Simulation; CIR Model; Embedded Option Pricing
JOURNAL NAME:
Technology and Investment,
Vol.3 No.2,
May
29,
2012
ABSTRACT: In this paper, a Monte Carlo method, which is based on some new simulation techniques proposed recently, is presented to numerically price the callable bond with several call dates and notice under the Cox-Ingersoll-Ross (CIR) interest rate model. The corresponding algorithms are also presented to practical callable bond pricing. The numerical experiments show that this method works very well for callable bond under the CIR interest rate model.