Callable Bond/EJ/e

H.-J. Büttler: Callable Bonds: Finite Difference Methods 9
0.00
#3 & #4
0.00
#4
#3
Percentage Error
-0.05
-0.10
#2
#1
Percentage Error
-0.05
-0.10
#2
#1
-0.15
0.0
(a)
0.5
1.0
Interest Rate
1.5
2.0
-0.15
0.00
Fig. 1a & b: Percentage Error on the Notice Day. ‡
(b)
0.05 0.10
Interest Rate
0.15
0.05
0.05
Percentage Error
0.00
-0.05
0.0
#3 & #4
#1 & #2
0.5 1.0
Interest Rate
1.5
(a)
2.0
Percentage Error
0.00
-0.05
0.00
#4
(b)
#2
#3
0.05 0.10
Interest Rate
Fig. 2a & b: Percentage Error One Time Step after the Notice Day. ‡
#1
0.15
3
3
2
2
#3
Percentage Error
1
0
-1
-2
0.0
#3 & #4
#1 & #2
0.5 1.0
Interest Rate
1.5
(a)
2.0
Percentage Error
1
0
-1
-2
0.00
#2
#4
#1
0.05 0.10
Interest Rate
(b)
0.15
Fig. 3a & b: Percentage Error after Two Years. ‡
‡ The numbers refer to the boundary schemes of Table 2. The parameters of the Lawson-Morris method are n 1
= 50, r m = 0.15, n 2 = 50, ψ = 200, ∆t = 1/74th of a year, s = 10 and m;^ = 1.
Royal Economic Society Conference University of Exeter, 28 – 31 March 1994