Pricing Callable Bonds Based on Monte Carlo Simulation Techniques

Deng  Ding; Qi  Fu; Jacky  So

doi:10.4236/ti.2012.32015

Deng Ding, Qi Fu^*, Jacky So

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.

Keywords: Callable Bond; Monte Carlo Simulation; CIR Model; Embedded Option Pricing

Cite this paper: D. Ding, Q. Fu and J. So, "Pricing Callable Bonds Based on Monte Carlo Simulation Techniques," Technology and Investment, Vol. 3 No. 2, 2012, pp. 121-125. doi: 10.4236/ti.2012.32015.

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