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Title: Valuation of bond options under the CIR model: some computational remarks
Authors: Larguinho, Manuela
Dias, José Carlos
Braumann, Carlos A.
Editors: Pacheco, A.
Oliveira, R.
Santos, R.
Keywords: bond options
CIR model
Issue Date: 2014
Publisher: Springer
Citation: Larguinho, M.; Dias, J.C.; Braumann, C.A. (2014). Valuation of bond options under the CIR model: some computational remarks. In "New Advances in Statistical Modeling and Applications" (Pacheco, A.; Oliveira, R.; Santos, R.; eds.), Springer, Berlin, 125-133
Abstract: Pricing bond options under the Cox, Ingersoll and Ross (CIR) model of the term structure of interest rates requires the computation of the noncentral chi-square distribution function. In this article, we compare the performance in terms of accuracy and computational time of alternative methods for computing such probability distributions against an externally tested benchmark. All methods are generally accurate over a wide range of parameters that are frequently needed for pricing bond options, though they all present relevant differences in terms of running times. The iterative procedure of Benton and Krishnamoorthy (Comput. Stat. Data Anal. 43:249–267, 2003) is the most efficient in terms of accuracy and computational burden for determining bond option prices under the CIR assumption.
ISBN: 978-3-319-05323-3
Type: bookPart
Appears in Collections:MAT - Publicações - Capítulos de Livros
CIMA - Publicações - Capítulos de Livros

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