Approximating the zero-coupon bond price in a general one-factor model with constant coefficients
Computational Finance
2014-08-26 v1
Abstract
We consider a general one-factor short rate model, in which the instantaneous interest rate is driven by a univariate diffusion with time independent drift and volatility. We construct recursive formula for the coefficients of the Taylor expansion of the bond price and its logarithm around , where is time to maturity. We provide numerical examples of convergence of the partial sums of the series and compare them with the known exact values in the case of Cox-Ingersoll-Ross and Dothan model.
Keywords
Cite
@article{arxiv.1408.5673,
title = {Approximating the zero-coupon bond price in a general one-factor model with constant coefficients},
author = {Beata Stehlikova},
journal= {arXiv preprint arXiv:1408.5673},
year = {2014}
}