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Volume 6, Issue 2
Approximate Formulae for Pricing Zero-Coupon Bonds and Their Asymptotic Analysis

B. Stehlikova & D. Sevcovic

Int. J. Numer. Anal. Mod., 6 (2009), pp. 274-283.

Published online: 2009-06

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  • 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.

  • Keywords

One factor interest rate model, Cox-Ingersoll-Ross model, bond price, analytical approximation formula, experimental order of convergence.

  • AMS Subject Headings

91B28, 35K05

  • Copyright

COPYRIGHT: © Global Science Press

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@Article{IJNAM-6-274, author = {}, title = {Approximate Formulae for Pricing Zero-Coupon Bonds and Their Asymptotic Analysis}, journal = {International Journal of Numerical Analysis and Modeling}, year = {2009}, volume = {6}, number = {2}, pages = {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.

}, issn = {2617-8710}, doi = {https://doi.org/}, url = {http://global-sci.org/intro/article_detail/ijnam/767.html} }
TY - JOUR T1 - Approximate Formulae for Pricing Zero-Coupon Bonds and Their Asymptotic Analysis JO - International Journal of Numerical Analysis and Modeling VL - 2 SP - 274 EP - 283 PY - 2009 DA - 2009/06 SN - 6 DO - http://doi.org/ UR - https://global-sci.org/intro/article_detail/ijnam/767.html KW - One factor interest rate model, Cox-Ingersoll-Ross model, bond price, analytical approximation formula, experimental order of convergence. AB -

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.

B. Stehlikova & D. Sevcovic. (1970). Approximate Formulae for Pricing Zero-Coupon Bonds and Their Asymptotic Analysis. International Journal of Numerical Analysis and Modeling. 6 (2). 274-283. doi:
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