NUMERICAL PRICING OF FIXED-INCOME DERIVATIVES

Autores

  • Allan Jonathan da Silva CEFET/RJ
  • Jack Baczynski LNCC
  • Estevão Rosalino Junior LNCC
  • Juan Bladimiro Rodriguez Otazú LNCC

Resumo

We consider the problem of pricing fixed-income derivatives with the interest
rates governed by short rate stochastic processes. We model the financial derivatives
via the Feynman-Kac theorem, transforming the conditional expectation problem into
a partial differential equation. We then apply a finite difference method to price both
first and higher-order derivatives to compare them against closed-form solutions. In
the case of Callable bonds, no closed-form formula exists and we compare our results
against other numerical method found in the literature. Finally, we engineered some
other exotic contracts to extend the results

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Publicado

2022-05-17

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